Asia triumphs despite sourcing diversification efforts

US apparel imports enjoyed decent growth but started to face softening demand. Specifically, thanks to consumers’ spending, in the first half of 2022, US apparel imports went up 40% in value and 24% in quantity from a year ago. Also, after removing the seasonal factor, US apparel imports in June were about 31% higher in value and 27% higher in quantity than in 2019, meaning the trade volume had fully bounced back to the pre-Covid level.

However, due to US consumers’ weakening demand amid the economic downturn, the speed of import expansion is slowing down quickly. As an alert, the US consumer confidence index (CCI) fell to 54.8 in June (January 2019=100), the lowest since the pandemic. This result suggests that US consumers were increasingly worried about their household’s financial outlook and would hold back their discretionary clothing spending. As a result, US retail clothing sales have stagnated since April (i.e., 0.0% growth in April, -1.1% in May, and -0.4% in June). Correspondingly, the month-over-month growth of US apparel imports dropped to only 2.6% in value and nearly zero in quantity in June from over 10% at the beginning of the year.

Fashion companies struggled with hiking apparel sourcing costs driven by multiple factors. According to the 2022 Fashion Industry Benchmarking Study recently released by the US Fashion Industry Association (USFIA), respondents rated “increasing production or sourcing costs” and “inflation and outlook of the US economy” as their first and third top business challenges in 2022. Notably, 100% of respondents expect their sourcing costs to increase in 2022, including nearly 40% expecting a substantial cost increase from a year ago. Further, respondents say that almost everything has become more expensive this year, from textile raw materials, shipping, and labour to the costs associated with compliance with trade regulations.

Macro trade data suggests the same trend. For example, the price index of US apparel imports reached 103.9 in June (January 2019=100), a 3.1% increase from a year ago and the highest since 2019.

United States International Trade Commission (USITC) data shows that in the first five months of 2022, US companies paid US$6.117m in tariffs for apparel imports (HS Chapters 61 and 62), a significant increase of 42.9% from a year ago.

Of these import duties paid by US companies, about 30% (or $1.804m) resulted from the controversial US Section 301 action against Chinese imports. Because of the Section 301 tariff action, the average applied US tariff rate for apparel imports also increased from 17.2% in 2018 to 18.7% in the first half of 2022.

US fashion companies continued to diversify their sourcing base in 2022, which benefited large-scale suppliers in Asia. On the one hand, the Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.11 in 2021 to 0.10 in the first half of 2022, suggesting that US apparel imports came from even more diverse sources.

On the other hand, despite the sourcing diversification efforts, the Asia region remains the dominant source of apparel for US fashion companies. For example, data shows that about 74.4% of US apparel imports came from Asian countries in the first half of 2022 (by value), which has stayed stable for over a decade.

US fashion companies continued to diversify their sourcing base in 2022, which benefited large-scale suppliers in Asia. On the one hand, the Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.11 in 2021 to 0.10 in the first half of 2022, suggesting that US apparel imports came from even more diverse sources.

On the other hand, despite the sourcing diversification efforts, the Asia region remains the dominant source of apparel for US fashion companies. For example, data shows that about 74.4% of US apparel imports came from Asian countries in the first half of 2022 (by value), which has stayed stable for over a decade.

US fashion companies’ China sourcing strategy continued to evolve and is far more subtle and complicated than simply moving out of China. Specifically: US fashion companies doubled their efforts to reduce sourcing from China in 2022, particularly in response to the newly implemented Uyghur Forced Labor Prevention Act (UFLPA) and the growing geopolitical risks.

Measured in value, only 13.2% of US cotton apparel imports (OTEXA code 31) came from China in the first half of 2022, which fell from 14.4% a year ago and is much lower than nearly 30% back in 2017.

US apparel imports from the free trade agreements and trade preference program partners stayed relatively stable in 2022 but lacked growth. Specifically, about 15.5% of US apparel imports came from free trade agreement partners and another 1.5% from trade preference program partners in the first half of 2022, on par with the performance a year ago. However, despite the growing enthusiasm among US fashion companies for expanding near sourcing from the Western Hemisphere, the trade volume stayed stagnant.

Product diversification is a critical area that needs improvement, particularly in terms of Western Hemisphere sourcing. For example, results show that US apparel sourcing from CAFTA-DR and Mexico generally concentrated on basic items such as tops and bottoms. In comparison, Asian countries, such as China, Vietnam, and Bangladesh, could offer much more diverse categories of products.

The availability of textile materials, such as yarns and fabrics, significantly affects a country’s capability to offer various apparel products. Meanwhile, as developing countries, CAFTA-DR members and Mexico have no capacity yet to self-supply textile raw materials like yarns and fabrics.

US apparel imports from the free trade agreements and trade preference program partners stayed relatively stable in 2022 but lacked growth. Specifically, about 15.5% of US apparel imports came from free trade agreement partners and another 1.5% from trade preference program partners in the first half of 2022, on par with the performance a year ago. However, despite the growing enthusiasm among US fashion companies for expanding near sourcing from the Western Hemisphere, the trade volume stayed stagnant.

Product diversification is a critical area that needs improvement, particularly in terms of Western Hemisphere sourcing. For example, results show that US apparel sourcing from CAFTA-DR and Mexico generally concentrated on basic items such as tops and bottoms. In comparison, Asian countries, such as China, Vietnam, and Bangladesh, could offer much more diverse categories of products.

The availability of textile materials, such as yarns and fabrics, significantly affects a country’s capability to offer various apparel products. Meanwhile, as developing countries, CAFTA-DR members and Mexico have no capacity yet to self-supply textile raw materials like yarns and fabrics.