Tariff War: How Long Can The Textile And Clothing Enterprises Exporting To The United States Survive After Tax Increases

This time, the United States imposed additional tariffs, covering traditional advantageous export industries such as furniture, toys and clothing, as well as emerging industries such as optical instruments and automobiles. As an important category of China's exports to the United States, textiles and clothing account for 17% of China's exports to the United States and 28% of the United States' imports from China. Undoubtedly, they have become the "hardest hit areas" affected.

Since the implementation of the last round of Sino US trade friction tariff increase policy in 2018, China's textile and clothing industry exported to the United States has experienced twists and turns. In 2019, textile and clothing exports to the United States dropped by 3.4 billion dollars, a drop of 8%; By 2023, the export volume will decline to US $28.7 billion, a decrease of US $16.1 billion or 36% compared with the peak period in 2020, accounting for 9.8% of China's total exports. The re imposition of tariffs undoubtedly worsened the already difficult situation of the industry.

The export business of enterprises bears the brunt of the additional tariff imposed by the United States. The order volume dropped sharply, the cost increased significantly, and the profit space was severely squeezed. Enterprises that used to rely on the US market may suffer a precipitous decline in sales, have difficulty in capital turnover, and even face the risk of loss and bankruptcy. For example, some enterprises that focus on the production of low-end textile and clothing products have low profits. Under the double pressure of rising tariffs and freight costs, they are almost unprofitable.

Panic is also spreading in the industry. The pace of enterprise investment and innovation is hesitant. Everyone is watching the trend of trade situation, and dare not invest in technology research and development and equipment update easily. The coordination rhythm between upstream and downstream enterprises in the supply chain has been disrupted, and problems have occurred in raw material supply, production planning, product delivery and other links. For example, upstream raw material suppliers are afraid of reducing orders from downstream enterprises and dare not produce in large quantities, leading to unstable raw material supply; Downstream production enterprises dare not purchase raw materials blindly due to uncertain orders, which affects normal production.

Faced with difficulties, many enterprises began to actively explore ways out. Some enterprises accelerate technological innovation, increase R&D investment, and improve product added value. By developing new fiber materials and improving production processes, we can produce more functional and high-quality textile and clothing products, thus improving the price competitiveness of products and reducing dependence on price sensitive markets. For example, in recent years, the fabrics developed by enterprises with antibacterial, warm, breathable and other functions are favored by the market.

Expanding emerging markets is also an important measure for enterprises. According to the statistics of the General Administration of Customs, China's textile and clothing exports will reach 301.1 billion US dollars in 2024, an increase of 2.8%. Since this year, the competitiveness of China's textile industry has been released steadily, and exports to countries jointly building the "Belt and Road" have maintained stable growth. However, the foreign trade of the industry will still bear greater external pressure.

Tariff

　　 The Survival Game of Textile and Garment Enterprises under the Tariff War: The Road to Breakthrough for Chinese Textile and Garment Enterprises

The new round of tariff increase policy of the United States has hit China's textile and clothing exports hard. This industry, which once accounted for nearly 30% of China US trade, is facing an unprecedented survival test. Since the trade friction in 2018, the export volume of the industry has plummeted from the peak of 44.8 billion dollars to 28.7 billion dollars, and the market share has shrunk to less than 10%. Under the background of high tariff sword and restructuring of global supply chain, enterprises urgently need to change from "passive survival" to "active destruction"

　 1、 Speed of life and death: industry crisis under double strangulation

The double squeeze of cost and market has plunged enterprises into a vicious circle. The 10% tariff rate plus the fluctuation of shipping costs directly swallowed up the profit space of 5% - 8% for low value-added products. Take the OEM enterprises in Jiangsu and Zhejiang provinces as an example, their quotation competitiveness has lagged behind Southeast Asian peers by 3-5 percentage points, and some American buyers are shifting their orders to tariff depressions such as Bangladesh and Vietnam.

The increased risk of supply chain decoupling will form a deeper secondary crisis. American retailers began to require suppliers to establish a "China+1" procurement system, forcing domestic enterprises to either relocate their production capacity or bear the loss of orders. In 2023, a garment factory in Dongguan forced customers to transfer 30% of its production capacity to Cambodia, resulting in a domestic production line operating rate of less than 60%.

　　 2、 Way to break the situation: triple breakthrough path

1. Technology upgrading and construction of moat

Functional textiles have become a powerful tool. The phase-change temperature regulating fabric developed by an enterprise in Shandong realizes intelligent temperature control by storing/releasing heat, and the unit price of the product is still four times higher than the demand. Industry data shows that the export premium of intelligent textiles with antibacterial, flame retardant and other functions can reach 2-3 times that of ordinary products, which is the key chip to break through tariff barriers.

2. Market restructuring to create a new blue ocean

The emerging markets of the "Belt and Road" show a strong siphon effect. In 2023, China's textile exports to ASEAN will grow by 12%, of which the import growth of Cambodia, Kazakhstan and other countries will exceed 20%. A home textile enterprise in Guangdong has deeply rooted in the Middle East market through the digital customization platform, achieving a 35% increase in customer price and successfully hedging the loss of orders in the United States.

3. Supply chain restructuring to build a safe haven

The "China R&D+Southeast Asia manufacturing" model has gradually become the mainstream. Although Vietnam faces potential tariff risks, its garment exports still enjoy the advantages of relevant taxes. A fabric giant in Suzhou set up a dyeing factory in Vietnam to further process high-end yarns produced in China and then re export them to the United States, which not only avoids 25% of the finished product tariff, but also maintains a 7-8% net profit margin.

　 3、 Policy empowerment: building a stress resistant ecosystem

The government is building dual support of "policy shield" and "market springboard". The export tax rebate rate was increased to 13%, and the expansion of cross-border e-commerce comprehensive pilot zones and other measures directly reduced the operating costs of enterprises by 2-3 percentage points. The cumulative rule of origin of RCEP allows enterprises to flexibly combine the supply chain of China, Japan, South Korea and ASEAN. A Ningbo clothing enterprise successfully reduced the tariff of American orders from 19% to 12% through transit in Malaysia.

In this battle about survival, there is no way out for pure price war. Only by combining "technical barriers+market diversification+supply chain flexibility" can we overcome the tariff storm. Those enterprises that take the lead in completing intelligent transformation, establishing transnational production capacity networks, and deeply plowing into market segments are showing an amazing ability to withstand pressure - although the industry reshuffle is tragic, the transformed and reborn enterprises will occupy a higher end of the global value chain. The end of this survival competition is not the tax rate in the tariff list, but the speed and determination of enterprise transformation and upgrading.

Although the US market is very important to Chinese export enterprises, in the long run, it is the general trend to reduce dependence on the US market and develop new trading partners.

China is no longer limited to the US market, but focuses on the "Belt and Road" Countries along the line, Southeast Asia, Africa and other markets. The rapid economic development and growing consumer demand in these regions have provided new development opportunities for textile and clothing enterprises. Enterprises actively explore emerging markets by participating in international exhibitions and establishing overseas sales channels.

In terms of entrepot trade, many domestic textile enterprises have moved to Vietnam and other countries, and the export proportion of emerging developing countries in the textile and clothing industry in the international market has gradually increased. Although on the one hand they have seized the domestic clothing market, on the other hand, because the upstream industries are capital intensive industries, the speed of industrial transfer is relatively slow, China can avoid sanctions by exporting textile raw materials to Vietnam and other countries, and then exporting ready-made clothes to the United States. However, Trump's current policy tends to impose global tariffs. Vietnam's trade surplus with the United States is only second to China, the European Union and Mexico. Trump has expressed concern about the trade deficit between the United States and Vietnam, and has listed Vietnam as a currency manipulator for a period of time. During Trump's second term, Vietnam faces higher tariff pressure.

Although the textile and clothing industry is facing many difficulties, there are also opportunities in the crisis. With the gradual recovery of the global economy, the consumption potential of emerging markets will be further released. As long as enterprises can persist in innovation, improve product quality and brand influence, and strengthen international cooperation, they are expected to stand out in the international market competition.

From the policy level, our government is also actively taking measures to support the development of the textile and clothing industry. A series of tax and fee reduction policies were introduced to reduce the burden on enterprises; Strengthen trade negotiations with other countries, promote multilateral trade cooperation, and create a good trade environment for enterprises.

Textile and clothing is one of the industries with the most complete industrial chain and the strongest international competitiveness in China. Although the United States imposed a 10% tariff on the textile and clothing industry, it is also an opportunity for the transformation and upgrading of the industry. Only by actively responding can enterprises survive in this trade storm and usher in broader development space.