Question

How might the competition take advantage of the tariff imposed upon textiles manufacturers outside the U.S.

Answer 1

Textile trade has long been complicated, requiring careful attention to the source and production methods throughout the supply chain to determine whether imports were allowed under quotas, or what tariff rate applied to the imports. Although the Trump administration has a fundamentally different policy towards international trade than prior U.S. presidents, textiles remain subject to their own unique and complex rules.addition, the textile sectors of Iran and North Korea are now targets for U.S. and international sanctions, the intended effect of which is to discourage non-U.S. companies from carrying out transactions with those countries. There have been significant developments in textile trade under the Trump administration; it’s useful to consider some of the developments in an historical context.

The agreements: continuity and change:-

Since the creation of the North American Free Trade Agreement (NAFTA) in 1994, U.S. regional trade agreements have aimed to increase U.S. and regional manufacturing of inputs to textile products. NAFTA established a “yarn-forward” rule of origin conditioning preferential tariff rates on sourcing NAFTA-originating yarn and fabric. Likewise, the Central American Free Trade Agreement-Dominican Republic (CAFTA-DR) also included similar yarn-forward requirements to receive preferential tariff rates.In addition, both NAFTA and CAFTA-DR include detailed product-specific rules of origin that must be met to receive preferential treatment. Combined, NAFTA and CAFTA-DR create significant incentives for supply chains to draw on North and Central American production of textile products.Companies involved in the textile sector should, if they have not already, review the United States-Mexico-Canada Agreement (USMCA) rules of origin to see how they differ from NAFTA. The USMCA, as a whole, preserves the status quo under NAFTA, with expected gains under USMCA being only a small boost to U.S. economic growth of 0.35 percent relative to NAFTA, according to the U.S. International Trade Commission (ITC). But USMCA also creates more stringent rules of origin for some products to encourage production in USMCA countries, to the exclusion of non-USMCA sources.

The Trump administration also has raised tariffs on significant volumes of imports, particularly China. As a result of an investigation of China’s intellectual property practices, the United States currently imposes tariffs on $370 billion worth of annual imports from China. Many tariffs on imported non-apparel textile goods went into effect on September 18, 2018, initially at 10 percent, and now at a rate of 25 percent. In addition, select apparel items from the European Union (EU) now are subject to 25 percent tariffs as a result of a World Trade Organization (WTO) dispute concerning subsidies to EU aircraft maker Airbus.Although not directly affecting the textile sector, the Trump administration also has imposed national security related tariffs on imports of steel and aluminum from all sources, subject to select exceptions for countries (most notably, Canada and Mexico). Similar tariffs may apply to automobiles and automotive parts, although the Trump administration has to-date refrained from imposing such tariffs.Looking ahead, textiles could become subject to new trade actions, particularly antidumping and countervailing duty (AD/CVD) investigations brought by U.S. manufacturers interested in targeting specific products. This occurred in 2018, for example, when U.S. producers of certain polyester staple fibers sought and succeeded in imposing increased tariffs on imports from South Korea, India, and China. For U.S. industries seeking to raise the price of competing imports, AD/CVD cases, unlike the broader trade actions described above, can strike with precision, covering only well-defined and narrow classes of goods. For importers, AD/CVD cases can be devastating or, depending on the market, a mere nuisance.