US apparel imports hit record high in 2022 but slow in 2023

At first glance, 2022 was a year of celebration, with the total US apparel imports experiencing a 22.5% increase in value and reaching a historic high of nearly $100 billion. However, a deeper dive into the data shows that most import growth occurred in the year’s first half. Starting in September 2022, US apparel imports began to cool down quickly as the US economy struggled with deteriorating high inflation and headwinds. Notably, US apparel imports decreased by more than 8% in value and more than 25% in quantity in the fourth quarter, the worst performance since the pandemic. Revealing the buyer-driven nature of the apparel business, US consumers’ demand for clothing remains the determinant factor for US apparel imports. For example, highly consistent with the import trend, Census data shows that US consumers’ clothing expenditure has been almost flat since September 2022. Meanwhile, the US consumers’ confidence index (CCI), a key indicator of market sentiment, lingered at around 65 in the fourth quarter of 2022, much lower than the pre-COVID level (January 2019=100). 

Additionally, given many economic uncertainties, leading economic agencies, such as the World Bank and the International Monetary Fund (IMF), predicted US GDP growth to be 0.5%-1.4% in 2023, much lower than 2.1% in 2022. This suggests that 2023 could be another challenging year for US apparel sourcing, with relatively low growth for the total import volume. 

Numerous studies suggest that US fashion companies leverage sourcing diversification and sourcing from countries with large-scale production capacity in response to the shifting business environment. For example, according to the 2022 fashion industry benchmarking study from the US Fashion Industry Association (USFIA), more than half of surveyed US fashion brands and retailers (53%) reported sourcing apparel from over ten countries in 2022, compared with only 37% in 2021. Nearly 40% of respondents plan to source from even more countries and work with more suppliers over the next two years, up from only 17% in 2021. 

Trade data confirms the trend. For example, the Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.110 in 2021 to 0.105 in 2022, suggesting that US apparel imports came from even more diverse sources. However, on the other hand, Asia continued to serve as the dominant source of US apparel imports with no sign of decline. For example, measured in value, about 73.5% of US apparel imports came from Asia in 2022, up from 72.8% in 2021. Likewise, the CR5 index, measuring the total market shares of the top five suppliers—all Asia-based, i.e., China, Vietnam, Bangladesh, Indonesia, and India, went up from 60.6% in 2021 to 61.1% in 2022. Notably, the CR5 index without China (i.e., the total market shares of Vietnam, Bangladesh, Indonesia, India, and Cambodia) enjoyed even faster growth, from 40.7% in 2021 to 43.7% in 2022. 

Additionally, facing growing market uncertainties and weakened consumer demand amid high inflation pressure, US fashion companies may continue to prioritize costs and flexibility in their vendor selection. Studies consistently show that Asia countries still enjoy notable advantages in both areas thanks to their highly integrated regional supply chain, production scale, and efficiency. Thus, US fashion companies are unlikely to reduce their exposure to Asia in the short to medium term despite some worries about the rising geopolitical risks. 

In 2022, China maintained its position as the largest source of apparel for the US market. Despite this, China’s market shares continued to fall, reflecting the ongoing efforts of US fashion companies to reduce “China exposure” and minimize the supply chain risks. Specifically, in 2022, China accounted for 21.7% of US apparel imports in value, down from 24.0% in 2021. Likewise, measured in quantity, 34.7% of US apparel imports came from China in 2022, down from 37.8% in the previous year. 

Several factors affected US apparel sourcing from China negatively in 2022. One was China’s stringent zero-COVID policy, which led to severe supply chain disruptions, particularly during the fall. As a result, China’s market shares from September to November 2022 declined by 7-9 percentage points compared to the previous year over the same period. The second factor was the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, which discouraged US fashion companies from sourcing cotton products from China. For example, only about 10% of US cotton apparel came from China in the fourth quarter of 2022, down from 17% at the beginning of the year and much lower than nearly 27% back in 2018. The third contributing factor was the US-China trade tensions, including the continuation of Section 301 punitive tariffs. Industry sources indicate that US fashion companies increasingly source from China for relatively higher-value-added items targeting the premium or luxury market segments to offset the additional sourcing costs. 

Further, three trends are worth watching regarding China’s future as an apparel sourcing base for US fashion companies. One is the emergence of the “Made in China for China” strategy, particularly for those companies that view China as a lucrative sales market. Recent studies show that many US fashion companies aim to tailor their product offerings further to meet Chinese consumers’ needs and preferences. Second is Chinese textile and apparel companies’ growing efforts to invest and build factories overseas. As a result, more and more clothing labeled “Made in Bangladesh” and “Made in Vietnam” could be produced by factories owned by Chinese investors. Third, China could accelerate its transition from exporting apparel to providing more textile raw materials to other apparel-exporting countries in Asia. Notably, over the past decade, most Asian apparel-exporting countries have become increasingly dependent on China’s textile raw material supply, from yarns and fabrics to various accessories. 

With growing concerns about US-China trade tensions and geopolitical risks in Asia, US fashion companies have been actively exploring sourcing diversification and bringing the supply chain closer to home. For example, the 2022 Fashion Industry Benchmarking Study indicates that more than 60% of surveyed US fashion companies planned to increase apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) through 2024. Another 48% of respondents planned to increase apparel sourcing from Mexico (or US-Mexico-Canada Trade Agreement members, USMCA). 

However, trade data suggests a mixed picture of nearshoring in 2022. For example, CAFTA-DR and USMCA members accounted for a declining share of US apparel imports in 2022, measured in quantity and value. While CAFTA-DR and USMCA members showed an increase in their market share of US apparel imports in the fourth quarter of 2022, reaching 10.7% and 3.1%, respectively, this growth was not accompanied by an increase in trade volume. Rather, US apparel imports from these countries decreased by 11% and 15%, respectively, compared to the previous year. CAFTA-DR and USMCA members’ gain in market share was simply due to a sharper decline in US apparel imports from the rest of the world, which decreased by over 25%. 

Trade data also suggests two other bottlenecks preventing more US apparel sourcing from CAFTA-DR and USMCA members. One is the lack of product diversity. For example, the product diversification index consistently shows that US apparel imports from CAFTA-DR members and Mexico concentrated on only a limited category of products, and the problem worsened in 2022. The result explained why US fashion companies often couldn’t move souring orders from Asia to CAFTA-DR and USMCA members. 

Another problem is the underutilisation of the trade agreement. For example, CAFTA-DR’s utilization rate for US apparel imports consistently went down from its peak of 87% in 2011 to only 74% in 2021. The utilization rate fell to 66.6% in 2022, the lowest since CAFTA-DR fully came into force in 2007. This means that as much as one-third of US apparel imports from CAFTA-DR did NOT claim the agreement’s preferential duty benefits. 

It is important to recognize that taking advantage of the preferential duty benefit is one critical incentive for US fashion companies to source from free trade agreement areas, such as CAFTA-DR. In other words, not being able to enjoy the duty-saving benefits would discourage fashion companies from expanding sourcing from CAFTA-DR and lead to sourcing orders being potentially shifted to other regions in the long term. Thus, regarding how to practically grow US fashion companies’ near-shoring, we could expect more public discussions and debates in the new year.