The US has announced a trade war on China. Should those in Europe or the rest of the world care? The answer is a deciding yes. For luxury companies, who have a global supply chain that is widely spread across international markets, any barriers to the movement of goods could be detrimental.
On a consumer level, think about the jeans and t-shirts you are wearing. The cost of these good are likely to go up. Your mobile phone, accessories like umbrellas and small leather goods, the list is long. Because anything that is made in China could be subject to tariffs.
We know by now that when two superpowers argue, it affects the entire world. By imposing tariffs, which is a tax on specific imports or exports, trade in clothing, small leather goods, fabrics, even manufacturing will be affected.
As consumers we buy many imports. Even your iPhone that was designed in California is assembled in China. All the foreign companies that will be taxed for their US exports have overheads to cover, which means prices inevitably go up.
When President Trump won the American election he vowed to bring jobs and manufacturing back to the US to boost industry back home and reduce the trade deficit.
Countries that could benefit include Bangladesh, by supplying cheaper cotton, as could Vietnam for its cheaper sewing factories for brands who outsource production to China.
Most economists, however, believe when goods become more expensive in trade wars it is the consumers who lose out.
According to Bloomberg, clothing accounts for about 35 billion dollars of China’s annual exports to the U.S., and footwear 15 billion dollars, around 10 percent of the total, according to Dylan Chu, China consumer discretionary analyst at CLSA Ltd.
China accounts for 36.4 percent of global clothing exports in 2017, according to the World Trade Organisation. The need for speed, from design to execution to delivering in-store means manufacturing under one roof - that includes sourcing local fabrics, trims and production processes - will help the turnaround of making and shipping garments more quickly.
Changing factories is often an enormous headache for brands, let alone moving production to other countries. This will surely affect lead times as there are not many countries that can produce bulk clothing in as little as 10 to 20 days. Speed to market is essential in today’s retail climate.
It was no coincidence that Louis Vuitton lowered its prices on its luxury leathergoods in China this week. In a statement to Jing Daily on 3 July LVMH said: “In consideration of the recent cuts on import duties and value-added tax, Louis Vuitton China has decided to mark down prices on a wide range of items to fully support the government’s efforts to reduce the price premium for luxury goods sold in China and overseas. Louis Vuitton China will continue to support the government’s efforts.”
Photo by Farm Futures; article source BBC