Thursday, 28 May 2020

US-China Trade War May Boost Mexico, Central America Apparel Makers

Apparel makers in Mexico and Central America could benefit from the US’s $50 billion of proposed tariff hikes on Chinese imports if retailers boost sourcing south of the border, industry experts say.

“If Chinese imports become more expensive for American retailers they could buy more from us,” says Arturo Rodriguez, a senior industry consultant based in Guadalajara, Mexico, a US apparel export hub.

However, “this would happen as long as Mexico maintains its price competitiveness with China. Even with a 25% to 35% higher tariff, many Chinese products are still cheaper, so manufacturers will have to put their batteries on and lower prices.”

With the Mexican peso hovering at about 18 per dollar, Mexican garments have become more attractive to US buyers – at least when compared to the $13 to $14 it traded at before Trump won the White House, launching his anti-NAFTA campaign and sending into a tailspin.

- paying the bills -

Even so, Mexican exports have not surged as much as expected, due mainly to producers’ unwillingness to budge on price. As Vietnam, Asia and Central America continue to steal market share (exports have halved to $4-$5 billion in a decade), Mexico must seize the opportunity stemming from a weaker Chinese manufacturing machine, observers say.
Central America celebrates

In Central America, expected tariffs on Chinese footwear and apparel to punish its US intellectual property law violations is another cause for celebration.

Already, Trump’s decision to exclude the region and the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) from his protectionist agenda, coupled with a strengthening US economy, are fuelling an export bonanza.

According to Guatemalan apparel industry trade association Vestex, the nation’s clothing exports could surge 15% to over $1.8 billion this year, up from a 10% gain in 2017. The group, the largest of its kind in Central America, expects a similar jump for the rest of the region too.

“100% of what we sell goes to the US through CAFTA or Mexico, so if there is a trade war with China that would help us. What China doesn’t do is good for us,” said Vestex general manager Alejandro Ceballos, who is a Trump sympathiser.

- paying the bills -

“We have had two years of double-digit growth, with expectations of an 11% to 15% export increase this year, so Trump has been good to us.”

While US clothing brands and retailers have sounded the alarm over Trump’s Chinese tariffs, as well as steel and aluminum duties likely to trigger retaliatory moves, Rodriguez argues the damage may not be as severe.
“Can live with it”

“I think that American consumers can live with a small increase in T-shirt prices,” he says. “They have a lot of clothing already. They buy seven to nine pairs of jeans per year, so now they may just buy five or six.”

Rodriguez sees the Chinese tariffs – and China’s assertion that it will retaliate – as an ephemeral system shock as the toughening inquiry over Russia’s meddling with Trump’s election could shorten his reign.

“If these tariffs were like the Berlin Wall and set to last 50 years, I could then see a dramatic shift [in the supply chain] but I don’t think that is going to happen,” Rodriguez concludes.


Q Costa Rica
Q Costa Rica
Reports by QCR staff

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