As an e-commerce shop owner or the owner of your own brick & mortar boutique, these coming months may present a turning point for your fashion business’s supply chain. The trade war between China and the United States is just revving up, and from farmers to automakers, no industry is guaranteed safety.
What is a Tariff?
First off, let’s cover what a tariff actually is: a tax charged on clothing that you buy to have shipped to you from another country.
Billions Impacted as the U.S.-China Trade War Begins
On July 6th, new U.S. tariffs took effect impacting $34 billion worth of U.S. products. These new 818 HTS codes still fall far below the original 1,333 first proposed by the Trump administration.
That said, the Trump administration has already requested new 25% tariffs on an additional 284 codes, worth an estimated $16 billion. If you’re running a clothing company that manufactures in China or that sells furniture, clothing, handbags, or accessories, this news may alarm you.
China’s response to the U.S. tariffs has come hard and fast with retaliatory 25% tariffs added on imports of several U.S. products, putting American companies looking to sell products to China in position to pay a higher product export rate to reach the fast-growing Chinese market.
Here’s how the numbers shake out:
- $50 billion: the total dollar amount of goods imported from China that tariffs may affect
- 25%: the percent of goods subject to the new tariff by the United States Trade Representative (USTR)
- 301: the section of the U.S. Trade Act of 1974 that gives the U.S. president the power to levy duties
- 818: the first batch of goods subject to the new tariffs and the number of HTS codes affected by the first round of Trump tariffs
- $34 billion: the total dollar amount of goods in the first 818 codes
- 7/6/2018: the date the first 818 tariff codes took effect
- 284: the second batch of proposed goods to be subject to the 25% tariff, due to undergo public comment this summer
- $16 billion: the valuation of the second batch of U.S. tariffs to be assessed by the USTR after public comment
How Tariffs Could Impact Your Clothing Supply Chain
Many designers choose foreign manufacturers for one key reason: a cheaper cost of production.
The production price that a manufacturer in China, Israel, or Italy quotes to a clothing designer to produce their products involves not only human labor costs, but also import customs fees, duties, shipping, and taxes. Right now, no matter where you manufacture your clothing line, if you produce your garments outside of the U.S., each product you bring into the country has to be cleared by the Customs Department before it can reach you. Each garment receives a unique HTS code with a specific tax percentage based on factors like:
- The fabric it's made of
- Whether it’s for men or women
- What product category it falls into (pants, shirts, dress, etc.)
This means that a $120 polyester dress you bought from Israel receives a U.S. Customs Fee of 12%, bringing the total dress price to $134.40 ($120 + $14.40 Customs Fee).
This formula repeats for any country from which you order products, and that percentage customs fee is the part of the cost that tariffs impact. This is the part that, pending new tariffs, could eventually break the bank for a U.S. designer, especially if one who is just starting out with a smaller production run of 100 or 200 products.
The new proposed tariffs do not affect clothing products right now, but they certainly could a year or two down the road. At this point, we do know that Chinese manufacturers are being affected across multiple industries which could cause prices to increase in other areas to make up for revenue lost directly due to Trump tariffs.
The Made in Italy Advantage
Made in Italy has a global reputation for quality, design, and excellence, and even better, at present, its clothing manufacturing industry isn’t being targeted by existing or proposed tariffs.
While human labor costs, import/export fees, and tariff impact will vary from country to country, smaller production runs cost more per product unit everywhere in the world. This is so that the factory can recoup the resource cost of producing a small order of unique products. Unfortunately, some factories won’t even work with designers who want to create fewer than 500 units of a given product.
If you’re going to pay the same price to manufacture 100 or 200 pieces of clothing anywhere in the world, our advice is to invest in the best quality for your customers and your brand.
Manufacturing your own Made in Italy collection will give your fashion brand the prestigious Made in Italy label and the opportunity to charge a higher retail price per product. Your garments will not only be unique, but also high quality.
Producing your own clothing line in Italy will also ensure that you to have close to zero defective pieces since the quality assurance process in Europe is more regulated compared to other countries with industrial production. Italian manufacturers also respect the standard policies on pattern protection and intellectual property.
Don’t let looming tariffs scare you completely off of working with foreign manufacturers. Creating a clothing line with Italian clothing manufactures remains a cost effective solution, and with MakersValley, it's a highly accessible option for designers anywhere in the world with an internet connection.
Learn more about the benefits of working with Italian manufacturers and meet some of the Italian artisans who are powering Made in Italy here or experience Italian craftsmanship yourself, by starting a project with MakersValley.