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Donald Trump

Fashion brands fear Trump’s trade policies will disrupt global production chains, with risk of tariffs squeezing profits

Clothing manufacturers await Trump presidency with bated breath, worried he could spark a trade war with China and other countries and force them to choose between producing more in the US or paying import penalties

PUBLISHED : Tuesday, 17 January, 2017, 3:30pm
UPDATED : Tuesday, 24 January, 2017, 5:48pm

When LVMH’s chief executive officer was seen in Trump Tower’s lobby last week, the fashion industry held its breath.

Bernard Arnault runs the world’s largest luxury goods company – a sprawling empire that includes Louis Vuitton, Fendi and Dior – and here he was, meeting with a president-elect who has threatened to roil the industry with trade restrictions. Following Arnault’s sit-down with Trump, LVMH said the French company was considering expanding its production in the US.

The encounter underscores a challenging moment for apparel makers, most of which had written off America as a major source of production. Other countries manufacture 97 per cent of the clothes sold in the US, but Trump has threatened to rip up trade agreements and impose tariffs in a bid to bring domestic jobs back.

That’s led many clothing giants to freeze their overseas expansion plans – and to pay lip service at least to the idea of making more of their wares in America.

“You’re not going to have a big expansion until you know what’s going to happen,” says Julia Hughes, president of the Fashion Industry Association, which represents names such as Ralph Lauren and Under Armour.

LVMH already has a factory in San Dimas, California, where it has made Louis Vuitton products for 25 years. The company is considering expanding that plant, as well as opening another facility in the South or Texas. But the decision has more to do with meeting local demand, says Sonia Fellmann, a Paris-based spokeswoman.

“The success of Louis Vuitton in the American market makes it necessary to increase production capacity,” she says. “The location has not been decided.”

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PVH chief executive Manny Chirico, whose company makes Tommy Hilfiger and Calvin Klein clothing, acknowledged in a recent interview that industry executives are nervous. So too are stockholders. Despite a market rally, PVH and Ralph Lauren are both down more than 13 per cent since Trump’s victory – though slow retail sales have contributed to the slump.

“It causes volatility that you have to deal with,” Chirico says. “But on balance you try to do the same thing, try to take a long view.”

The concern is that Trump’s rhetoric and tweet storms will escalate into a trade war with China and other countries. That would leave apparel makers with a dilemma: continue to produce in those countries – and pay margin-squeezing tariffs and other penalties – or attempt to rebuild US clothing infrastructure.

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The early signs from the president-elect point to some kind of confrontation with China. He has hired Peter Navarro, a frequent critic of China’s trade practices, to lead the newly formed White House National Trade Council. He also chose Robert Lighthizer, another China trade critic, to head the US Trade Representative office.

Trump’s own history with the apparel industry spotlights the challenges of making clothing domestically. The 70-year-old relied on offshore manufacturing to produce his line of businesswear, which was sold in Macy’s until a split in 2015. His daughter Ivanka’s clothing line, made by G-III Apparel Group, comes from China.

In all, the US imported about US$82 billion worth of apparel during the 12-month period that ended in September, according to data from the Commerce Department. More than 40 per cent of clothing shipped to the US is made in China, with seven of the top 10 importers located in Asia.

Ascena Retail Group, the women’s apparel seller that owns the Lane Bryant and Ann Taylor brands, has been assessing its operations in the wake of Trump’s victory. That includes holding off on expanding overseas sourcing agreements, according to Linda Heasley, chief executive of the company’s plus-size division.

“We’ve been positioning ourselves to take advantage of whatever might happen,” Heasley says.

Americans do say they want more domestically manufactured clothing, but they may not be willing to pay the higher prices. Made-in-the-USA products could double retail costs and potentially hurt the economy, says Hughes, of the Fashion Industry Association.

But advocates of domestic manufacturing are more optimistic. By investing in US factories – and relying on automation – the clothing industry could make 30 per cent of its products at home within the next 15 years, says Harry Moser, founder of the Reshoring Initiative. He points to the hidden expenses and hassles of Asia-made clothing, including shipping, duties, extra inventory costs and having to travel across the world to check on suppliers.

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Of course, using factory robots wouldn’t require an army of workers, but a resurgent US apparel industry could still bring plenty of dollars and jobs, he says.

“We are talking about hundreds of billions of dollars,” says Moser, who consults with Wal-Mart Stores on its Made in the USA programme. “And maybe a million jobs.”

What could happen is that big brands will avoid Asia and shift production to Mexico and Central America, where there is already a robust apparel industry, says Augustine Tantillo, president of the National Council of Textile Organisations.

That would still help boost employment at US textile companies, which make the yarns, fabrics and fibres purchased by clothing producers. The American textile industry has 580,000 workers, down from about 1.8 million in the late 1990s when production shifted to Asia, according to the trade group.

Dov Charney knows as much about domestic clothing manufacturing as anyone. He founded American Apparel, which sewed its wares in a Los Angeles factory and touted that fact in a chain of stores nationwide.

Charney was forced out of the company, which then went bankrupt twice, but he’s now working on a new LA clothing startup. Apparel production in the US is becoming more feasible because of the advances in automation and technology, he says.

The US doesn’t offer the same kinds of financial incentives as China, Charney says. But he thinks companies could make a lot more stuff at home if they had the know-how – and perhaps a bit of a push.

“It’s highly efficient to make clothing here, but a lot of people don’t understand how to do it,” Charney says. “American manufacturing is underrated.”