Many of the products we use on a day to day basis are produced in manufacturing plants and stored in warehouses around the world. In particular, most of the clothes we wear are not manufactured here in the United States, but rather feature that well-known “Made in China” sticker. However, as the trade war continues to escalate, it could have a significant impact on the origin of the clothes we wear. If tariffs continue to increase on consumer goods, there is a possibility that both small and large manufacturers alike will consider moving their clothing manufacturing operations to the United States.
Without exploring the intuition, it doesn’t seem feasible that increased tariffs alone could provide the additional cost needed to push corporations to move their productions back onshore. However, the proposed tariff would be at a rate of 25% for all imported clothing and could tip the scale in favor of US manufacturing as a result of all the other increasing costs. In China, the logistical costs for producing clothes is much higher than it is in the United States. Intuitively, making clothes more than 5,000 miles away from where they will end up is not cost effective. In addition to the tariffs, the cost of labor has been rising in China and other clothes manufacturing nations around the world. While labor costs are still significantly cheaper than those in the US, the sensitivity analysis shows that the increased labor costs push offshore operation closer to a breakeven point than they ever have been before. Finally, moving back to the US would significantly decrease the lead time for many products at different locations in the logistics process would all be in the country and finished products would travel a much shorter distance.
Lloyd Wood, director of public affairs for the National Council of Textile Organizations, hared more about the potential benefits of moving the production of these products back onshore, saying that It, “benefits not only the upstream U.S. supplies of textile components, but it also boost the competitiveness of cut and sew operations in the NAFTA and DR-CAFTA regions, the U.S. textile industry’s most important export markets. Moreover, tariffs would encourage more R&D focus on automating apparel assembly, technology showing very promising potential to re-shore jobs.”
In a few cases, there are Chinese manufacturers that are actually moving their operations to the United State to save money. One such example is the Chinese textile manufacturer Keer Group. In a discussion with CNBC, Zhu Shanquing, the president of Keer Group, discussed the move to the US: “In the U.S., land, electricity, and cotton are all much cheaper. My production cost per ton of textiles is 25% lower [there].” But he said that if this is to become trendy, U.S. policymakers must set up an “ecosystem” to provide financial incentives and distribution lines to retailers.
Currently, without the tariffs in place, the United States does not make up the difference in labor costs in most situations. The US does not have a strong garment manufacturing infrastructure compared to countries like China. However, the tariffs would raise prices across the supply chain and could impact the final call in the decision between onshore and offshore manufacturing.