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The waiting game

October 21st, 2019 / By: / Feature

Businesses are challenged with making decisions in an uncertain trade environment.

by Marie O’Mahony

Editor’s note: The issue of U.S. trade is unusually dynamic and evolving today. This article represents information available when the speaker presented at IFAI Expo in early October.

With international trade in a state of flux, it’s understandable that the advanced textile industry may be inclined to stand by and wait until things stabilize. But business doesn’t stand still, and whether you are a member of a lobbying group or tracking a single component along your supply chain, it’s crucial to stay informed of events as they unfold in Washington, D.C.

Photo: Mark Skalny.

At IFAI Expo 2019, “Campfire” presentations provided a forum to catch up on progress and likely scenarios in advance of the scheduled U.S./China trade talks scheduled later in October. While an “agreement in principle” to a trade trace has since been reached, as it stands, it will not roll back the billions of dollars in tariffs already imposed. Added to this, an escalation of tariff battles with Europe (with details pending) is creating further uncertainty on yet another trade front.

Complex and uncertain

In the first of two talks, Sara Beatty, president of White Haven Trade, gave an update on government relations as they relate to trade, tariffs and military procurement policy with co-presenter Auggie Tantillo, president of SG & Associates. That the U.S. and China were close to reaching an agreement last spring may give some cause for optimism; however, the speakers acknowledged that we seem to be caught in a waiting game.

China may choose to sit it out and see what happens with the question of impeachment and if more favourable terms might be had with a successor. Alternatively, the age-old political wisdom that says, “When there is trouble at home, look to see what might be achieved abroad” might be applied around the negotiating table.

The United States Industrial Fabrics Institute (USIFI) and the Narrow Fabrics Institute (NFI) advocate for the industry’s legislative and regulatory needs in Washington D.C. In itself, representing the very diverse interests and priorities of the industry brings its own complexity as the members represented cover a range of sizes and market interests from highly specialist niche, to very broad market segments.

“Over 90 percent of what we import are finished goods, rather than intermediate imports necessary for the sector,” according to Beatty. Having items going on and coming off tariff lists again causes difficulty.

In the push to bring manufacturing back on shore it is essential to maintain investment in new equipment and technology to remain competitive on the global as well as the national stage. Much of this is not being produced in North America so that there is no choice but to import, and as the list currently stands, manufacturers must bear the cost of tariffs.

In some instances, materials components are not produced by the U.S. One example is Rayon, which is not available in the U.S., so it has to be imported. Having it on the tariff list would seem to make little sense. There are undoubtedly “grey areas” where a material or component may be available in U.S., but not in the form or to the scale required.

Speaking with exhibitors and delegates at Expo about their personal take on trade issue revealed insights borne out by experiences, and there are glitches that manufacturers were keen to see addressed. Participants at Expo agreed with presenter Auggie Tantillo that China’s currency devaluation has ensured they remain cheaper for coated fabrics, despite the tariffs. Thomas J. Olsen, senior director of product marketing in the health, hygiene and specialities division of Fabrene (a division of Berry) used the company’s filtration products as an example. Much of it is sold to China, and so it’s subject to a double tariff.

Further, Olsen said that tariffs are applied by weight, which can cause problems for low-cost materials carrying through to finished product. This is especially true when comparing tariffs that may be applied to a lighter material, which is then used in a high-value end product.

Unintended consequences

There are unintended consequences to the tariffs imposed as a result of such an unprecedented trade war with China. Michael A. Murray, DeSales Trading Company Inc., recounted a recent conversation with a manufacturer who pointed to the dumping of Chinese product not at the yarn or material cost, but at the cost of raw material. Even with tariffs it still comes out cheaper than a domestic equivalent.

“How can we compete with that?” was Murray’s rhetorical question, because, of course, American manufacturers cannot hope to match that kind of pricing.

Beatty pointed to what she sees as a tariff cap that’s too low, allowing materials and components into the country to the detriment of SME suppliers, in particular. Murray lamented that the government is not applying more rigor to guarding against tariff avoidance, pointing to some U.S. manufacturers who he sees using the NAFTA agreement to route materials and components through Mexico, using their own manufacturing facilities or other means for shipment. These are largely “flying under the radar” and need greater oversight in the interests of fairness to other U.S. manufacturers.

Wade Kytola, senior director of sales, Minnesota Knitting Mills, agreed with the view that many are waiting to see what happens with the trade war with China and impeachment. This is reflected in a higher number of inquiries but slower follow-up on orders. His colleague, Britt Moore director of customer services, would prefer to see tariffs applied to finished product. Minnesota Knitting Mills uses materials sourced in North America, so import tariffs on raw materials do not affect them directly. However, dyes they cannot source nationally, so there is no choice but to import these.

Applications can be made for exceptions and the lists are subject to change as Beatty has described. What Kytola, Moore and many others questioned at IFAI Expo are upon is that the biggest obstacle they face is knowing what is going to happen.

Following a trade agreement in principle, New York Times columnists Ana Swanson and Alan Rappeport see the administration’s self-heralded trade gains as coming at some cost: “Mr Trump’s tariffs have raised prices for businesses, uprooted global supply chains and created crippling uncertainty for companies, delaying investment and hiring. The pain has spread beyond the United States and China, exacerbating a global economic slowdown, particularly in Europe. … Economists warn the damage is likely to outlast an interim trade deal with China.” 

Grim words, but exhibitors and delegates at EXPO2019 were noticeably forward-looking, acknowledging that while there will be changes ahead, they are also seeing opportunity to forge new connections both nationally and globally. While the only certainty may be uncertainty, remaining informed and making preparations for different outcomes has never been more necessary. All the information may not be available, but we do have some, and that, at least, is a place to start.

Marie O’Mahony is an industry consultant, author and academic. She the author of several books on advanced and smart textiles published by Thames and Hudson and Visiting Professor at the Royal College of Art (RCA), London. www.linkedin.com/in/marie-o-mahony-94776836