Explainer: How will Trump’s BRICS tariff threat impact apparel sourcing?
5-12-2024
EXPLAINER: HOW WILL TRUMP’S BRICS TARIFF THREAT IMPACT APPAREL SOURCING?
US president-elect Donald Trump has suggested the BRICS countries which include fashion majors China and India, could be at risk of 100% tariffs if they try to replace the dollar.
Trump posted on his social media platform Truth: “We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar or they will face 100% tariffs and should expect to say goodbye to selling into the wonderful US economy.”
He added: “The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is over”.
Why is Trump threatening BRICS with tariffs?
The BRICS countries Trump is referring to includes fashion majors China, which is already at risk of more US tariffs based on previous Trump social posts and India, which had been hailed as an alternative to China amid ongoing tensions with the US and neighbouring Bangladesh following its recent instability.
The other countries in BRICS are Brazil, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates.
While Trump’s threat is based on Brazil and Russia suggesting a BRICS currency to reduce the US dollar’s dominance in global trade, UK news publication the BBC argues internal disagreement has slowed any progress.
Supply chain risk for apparel sourcing in BRICS countries
GlobalData retail analyst Neil Saunders tells Just Style that if Trump were to follow through on this threat it would “immediately make all of those countries very unattractive for production”.
He says: “We would likely see far fewer US orders being placed with manufacturers in those locations and fashion retailers and brands would look to shift production elsewhere. They would try to do this as quickly as possible due to the onerous nature of the tariffs, but in the process of making changes there would be disruption.”
Should key fashion major India be concerned?
Saunders notes all of the BRICS countries should rightly be concerned that they are in what he describes as the “firing line,” but he continues: “They should also see this for what it is: a negotiating tactic and a threat, not a firm policy position”.
American Apparel & Footwear Association (AAFA)’s president and CEO Steve Lamar is keen to highlight India’s position as “a major supplier of apparel, footwear and accessories” and “an alternative to China”.
But, he states: “Not with 100% tariffs, which will just be another huge, hidden tax raising the price hard working American families must pay to get dressed every day.”
Saunders agrees, adding: “A 100% tariff rate would make India far less attractive and would put its apparel manufacturing industry at a huge disadvantage.”
He goes as far as to say “there would likely be quite a lot of reversal to some of the trade it won because of the problems in Bangladesh”.
However, he points out shutting India out of the mix of manufacturing locations would also be problematic for US firms which enjoy the benefits of the country’s huge labour force and manufacturing capacity.
Fashion sourcing executives face uncertainty
Saunders says the biggest problem fashion sourcing executives face is uncertainty. They know some form of tariffs are likely to come into being, but they don’t know the extent or scope of these or where they will apply.
As such, his advice is “to have contingency plans for shifting manufacturing to alternative locations”.
Plus, he says they also need to ensure that their supply chains are nimble enough to cope with any “sudden changes”.
Risk of higher supply chain costs, port congestion
University of Delaware professor of fashion and apparel studies Dr Sheng Lu says for Trump this is all about “specific policy goals,” however US fashion brands and retailers may interpret this as “another signal that no country is a safe harbour immune to sourcing risks during his second term”.
Lu’s concern is that “this perception could have unintended consequences”.
He points out that if all sourcing destinations are viewed as “equally risky, fashion companies might hesitate to diversify away from China, especially if China remains economically competitive as an apparel sourcing base for the moment”.
He continues: “Moreover, although December through February is typically a light season for US apparel sourcing, concerns over potential tariff increases could prompt fashion companies to expedite their shipments to avoid higher import costs. This surge in demand could place unusual pressure on shipping and logistics, driving up costs and causing port congestion.”
Fashion sourcing executives urged to remain resilient
In a similar vein to Lu, Gherzi Textil Organisation partner Robert Antoshak believes it’s critical that fashion sourcing executives do not act with haste.
He explains: “As with Trump’s pronouncements about raising tariffs on Canada, Mexico, and China, his call for 100% tariffs on imports from BRIC countries is more of the same.”
His view is the “media gets flustered and over-reports it, which alarms a lot of folks but it does set the stage for future negotiations”.
However, he does admit Trump is “setting expectations without even being in office yet”.
By Just Style
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