˙The United States seems to be struggling in this trade war with China, and China’s major garment manufacturers are about to become one of the biggest beneficiaries.
˙Some larger Chinese suppliers began to build in Vietnam as early as 3 to 5 years ago, before the Trans-Pacific Partnership Agreement (TPP) was signed. Production base.
˙Chinese manufacturers can wisely use rules of origin (RoO) to mitigate the impact of new tariffs.
˙Reducing taxes and currency devaluation will give Chinese exporters flexibility to reduce prices.
˙Amid the trade war, automation has emerged as another strategy for large Chinese companies seeking to solidify their positions.
The U.S.-China trade war is intensifying, which has proven to be an opportunity for China’s large-scale garment manufacturers that have long-term plans to build overseas production capacity, especially In Southeast Asia, especially the country of Vietnam.
For goods originating from China, these companies have the ability to adapt to the worsening tariff barrier conditions in the U.S. market. However, those small companies that cannot provide Southeast Asian production operations are Very affected.
According to Dennis Lam, an analyst at DBS Bank’s Hong Kong office, smaller Chinese garment companies may collapse due to the impact of the trade war, thereby giving up market share to large enterprise.
From a multi-year perspective, the trade war has forced companies to face the risk of closure. The TPP agreement (Trans-Pacific Partnership Agreement) will annihilate them. These large companies established a foothold in Vietnam as early as 3 to 5 years ago…Brands have encouraged them to build production capacity in Vietnam.
(1) Bargaining
Dr. ShengLu, associate professor of the Department of Fashion and Apparel Studies at the University of Delaware in the United States, pointed out that, According to the “2019 U.S. Fashion Industry Benchmark Study”, about 50% of the respondents said that during the tariff war, cooperating Chinese suppliers had “cut prices to protect purchase orders.”
Dr. ShengLu, who conducted the research in collaboration with the United States Fashion Industry Association (USFIA), added: However, such pricing practices may not be sustainable… Because China is no longer regarded as a “cheap supplier” for garment production, and some major cost factors, such as wage levels, are rising rapidly in China.
Analyst Dennis Lam said that China’s larger garment and textile companies have not been bidding against each other for some time. For example, well-known brands such as Nike like to cooperate with vertically integrated suppliers. For such buyers, it is difficult to move to a new supplier.
(2) Rules of Origin
All manufacturers based in China can be relieved of new tariffs The only way to impact is through judicious application of rules of origin (RoO). Lam refers to sweaters. For example, according to the US rules of origin, when considering whether the sweater is produced in China (which will incur the imposition of new tariffs), the place where the sweater is made is more important than the place where it is sewn?
(3) Flexibility of exporters
The Chinese government has also been helping those with American brands Collaborating suppliers share the burden of tariffs. Dan Harris, managing partner of the Seattle-based law firm Harris Bricken, said: Among other things, China has reduced tax burdens on exporters and weakened the yuan.
In addition, there are two things that help Chinese exporters use flexible price reductions. And many also realize that if they don’t cooperate with the price cuts, buyers will go elsewhere to place their orders.
In fact, Harris emphasized that most of the manufacturing contracts signed by the company’s customers are in China, including clothing companies. On the one hand, they purchase from China and on the other hand, they transfer production. Or move production outside of China.
Harris pointed out: Another form of government assistance is to devalue the yuan, which will greatly help profit margins. Still, many economists say China’s ability to manipulate the yuan is limited to concerns about too much money being held within China’s borders, meaning less capital flows and less growth.
China’s domestic market can also absorb some excess production capacity from local garment companies. Lam said: As China’s supply chain practices become more international, it is becoming increasingly easier for Chinese manufacturers to sell locally. Suppliers in the past have focused on the export market due to reduced credit risks and reduced supply chain corruption.
(4) China’s production in China
According to data compiled by McKinsey, in China International brands are indeed at more risk: multinationals (non-Chinese companies) accounted for almost half of China’s top 30 ready-to-wear and footwear brands in 2018. The corresponding figure in the United States is 9%, indicating that international brands are more attractive in China.
According to Chris Devonshire Ellis, principal and founder of DezanShira, a business consulting firm with offices in China and Vietnam, this is why some manufacturers are still cautiously maintaining their presence in China. The reason for production is aimed at gaining access to the Chinese market.
He observed that some spread to Africa.��One Belt, One Road Initiative (BRI) countries, especially Russia. He added that Russia has adjusted its supply chain to respond to Western sanctions by “using Asia to distance itself from Europe.”
However, in the long run, the trade war will only shift American production to Southeast Asia. DevonshireEllis believes that Washington’s “barbaric” approach will eventually integrate China with some lower-cost Association of Southeast Asian Nations (ASEAN) countries, which is more conducive to China’s economic development.
(5) Competitiveness continues to improve
However, although Vietnam has clearly become the main source of Chinese garment manufacturers destination, it’s clear these manufacturers have taken other steps to improve their competitiveness.
Automation is another tactic as China’s largest companies seek to strengthen their position amid the trade war. Shandong Weiqiao Textile recently announced that it will spend 820 million yuan (equivalent to 116 million U.S. dollars) to build a spinning and weaving production line in one of the group’s many factories, which will reduce 90% of workers. quantity to obtain the same output.
According to a June 2019 research report from the Hong Kong office of French investment bank Natixis, one-third of global labor-intensive manufacturing exports currently come from China, while Vietnam only accounts for 4% of global market share. Although the trade war still exists, this shows that China may control the major market share in product projects.
(6) Tariff experience
Although the latest tariff measures on clothing series products have not yet been implemented, It is planned to take effect on September 1 (Batch 4A of the List) and December 15 (Batch 4B of the List). However, it is worthwhile for us to continue to follow up and investigate suppliers and the United States when using tariff means to evaluate the willingness of importers to pay tariffs. Buyer response.
For example, the supply of special metal materials for the US aviation industry mainly comes from China, and about 90% of buyers are paying tariffs. Lam said: Its only function is that it is very difficult to obtain this kind of metal material from elsewhere. For the clothing and textile products that everyone is concerned about, this consideration is different.
For its part, U.S. department store retailer Macy’s Inc recently said it has no plans to raise prices on products affected by the next batch of tariffs .
Its CEO Jeff Gennette said that after the 25% tariff was imposed on the third batch of goods in the list in May, the retailer has increased its sales of luggage, homewares and furniture. Make selective price increases on other product categories. But we know from experience that cost increases are of little concern to customers.
However, he said that the company has no plans to increase the prices of products subject to an additional 10% punitive tariff, but if the tariff rises to 25%, the company will have to deal with it internally. Momentum for change.
(7) Transshipment
At the same time, the United States has strict regulations on Chinese enterprises passing through Vietnam or other third parties. Increase precautions for “washing origin” transportation in the three countries.
Dan Harris pointed out: Illegal transshipment is a serious crime in the United States. U.S. Customs is very aware that illegal transshipment is occurring and is working hard to prevent this violation. We encourage our customers to make an effort to confirm that the products they are purchasing are indeed from countries such as Vietnam or Cambodia, Sri Lanka or Thailand, and not from China.
So he added: As far as I know, this is not just a problem of clothes, it does involve many other product items.
DevonshireEllis said: The possible reasons for this situation are: because China has been deeply involved in ASEAN (ASEAN) and has been operating for more than ten years, in fact, they do not need to do this .
They are ready for the trade war and will fight it to the end. It’s not entirely a coincidence that they work so aggressively on trade deals, such as the ASEAN-China Free Trade Area Agreement (ACFTA).
He recalled that a Chinese trade minister ten years ago said that one day the United States would have a trade war with China, which has now come true.
He said: They are ready. Within 5 years, the United States will follow India. Washington complains about ASEAN starting in two years. As you can see.
As reported by the media, before the export of ready-made garments and other textiles slowed down, China’s upstream manufacturers of fiber, yarn and fabrics had been increasing production.
However, experts also believe that for the printing, dyeing and finishing of man-made fiber fabrics, it seems unlikely that large-scale production will be transferred out of China.
