Does it seem that lately, every time you open an industry newsletter or publication, there is an article regarding trade issues? For those not immediately affected by the rapid changes in international trade, it's difficult to understand the impact of trade policy on your business. Likewise, if you're not a manufacturer dependant on the international production of goods, it's common to conclude that trade issues are not relevant to your business.
As news stories about the influence of China trade policy on American jobs begin dominating the fall elections, it is critical that both outdoor retailers and manufacturers fully understand how pending decisions in Washington, D.C., will impact your bottom line, affect your competitive edge and the future growth of the industry as a whole. The recent focus on trade issues has been in regard to performance outerwear and footwear manufactured in China. However, international trade issues can positively or negatively affect the entire supply chain in virtually every product category and country of origin.
Whether you're a manufacturer or retailer, understanding the basics of trade issues can help you run your business more smoothly and navigate the complex world of trade policy. Here are some of the key issues to watch.
A determined and well-financed opposition to free trade
Apparel trade issues tend to be the most contentious. According to congressional records, the American Manufacturing Trade Action Coalition (AMTAC), a trade association representing U.S. textile manufacturers, along with its members and allies spent a combined $502,700 on lobby efforts, primarily to restrict apparel imports. AMTAC submitted the petition that effectively stopped shipments of outdoor performance pants at the border last fall and negatively impacted the sales of many outdoor manufacturers and retailers.
Last year, the industry was surprised by the unprecedented first petition on outerwear performance pants. Outdoor Industry Association (OIA), however, reacted quickly and successfully defeated a subsequent petition by AMTAC to embargo performance outerwear jackets, a disastrous prospect for most outdoor manufacturers and retailers.
AMTAC's argument was that it was protecting American jobs with these embargoes and that domestic manufacturers have been able to supply the same quality and quantity of apparel found in Asia. That argument may hold water regarding casual, non-technical apparel; however, specialty outdoor performance jackets and pants are not produced in the United States and have not been for many years. As a result, their commercial import does not cause disruption to domestic manufacturers.
As for product categories that do have domestic production capabilities, OIA has no intention of pursuing the elimination or reduction of duties that help ensure a domestic producer of outdoor specialty products remains competitive.
Why should you care? It's about competitiveness
Surprisingly, some retailers and manufacturers believe that trade issues don't have a major impact on their business. The truth is just the opposite. Would you support taxes targeted specifically at outdoor products? That's really what tariffs and duties are; import taxes targeting specific goods. For some kinds of outdoor products, these taxes are as high as 38 percent simply for incorporating a high performance design feature.
Then ask yourself, how will your business survive if you can't get products on your shelves? With the embargo of outerwear pants from China last year, outdoor businesses saw how the lobbying efforts of unrelated special interests can stop the free flow of products to our retail outlets. Furthermore, companies that manufacture in the United States and might think they are immune to international trade issues can be impacted when high revenue product categories for retailers, like apparel, are disrupted and dramatically reduce retail sales and cash flow -- affecting every company's ability to sell product.
As a result of China's WTO agreement, anti-free trade interests will continue to lobby to restrict the quantity of imports or increase the cost of landed goods of specialty outdoor products for the next three years. Later this year, associations representing domestic textile manufacturers are expected to request quotas that could possibly lead to further embargoes of outerwear jackets and pants from China and Vietnam. As a retailer or manufacturer, you should care deeply that someone, other than yourself, is determining your product flow and your cost of goods sold.
In addition, a recent survey by OIA found that specialty retailers are seeking ways to become more competitive in a mass retail world. Reducing the cost of delivering high-end specialty outdoor products to the consumer is one major way that OIA can help increase the competitiveness of the specialty marketplace.
Watch the November elections
During the last Capitol Summit, OIA members heard from moderate free trade Republicans and Democrats that the "get tough on China" sentiment is quickly growing as the November elections near. As a result, members of Congress are under increasing pressure to place some type of penalty on imports from China this year. As November approaches, expect to see more protectionist measures by some in tough races.
Sens. Lindsey Graham, R-S.C., and Charles Schumer, D-N.Y., have proposed a 27.5 percent punitive duty that now has a very real possibility of occurring this year. This duty is an attempt to force China to revalue its currency, which many argue is kept artificially low to undercut American competition. If passed, a punitive duty of 27.5 percent would likely result in a substantial increase in the retail price of specialty outdoor products made in China. For example, a technical outerwear jacket that normally retails at $200 would instantly jump to approximately $250.
Passage of the Graham/Schumer punitive duty bill would be especially hard on small to mid-sized specialty manufacturers and retailers. Mass manufacturers and retailers have multiple factories and countries from which they source, so they can move their production to avoid the punitive measures. Purchase orders by large companies would also receive priority in the event companies are forced to scramble to find a new country to produce their products. Without question, specialty manufacturers and retailers would be in a competitive disadvantage and the most negatively impacted by punitive measures against China.
OIA will provide legislative updates and action alerts to the industry as this debate heats up and elections approach.
Things you should know
Even if pressing trade issues do not have an immediate affect on you and your business, there are important secondary implications for every member of our industry.
- Being informed can prevent your business from getting caught in contentious trade battles. While OIA cannot predict the future, we closely monitor trade policy and the decisions made at the national and international level.
- Trade policy is constantly changing -- sometimes allowing greater flexibility in imports or new market access and other times causing greater restrictions on your imports and exports.
- As a retailer, delivery can be adversely affected by trade issues.
- Do available products meet your customer demand? Can customers get the products that they want, technological developments they demand, all in a timely manner relative to seasonal sales cycles?
- The timing of policy changes can catch businesses off guard. How responsive are your manufacturing relationships? Are they flexible should trade policy changes necessitate shifts in production and delivery? The seasonality of products can be an asset or hindrance in navigating trade regulations.
Shifting ground in trade policy
Things are changing quickly with U.S. and international regulations on exporting countries. Where your products are manufactured has an obvious correlation to when and how they make it to the sales floor. Shifts in trade policy may come with little notice, but can substantially impact the ability to get your products to market in a timely and affordable manner. While your company may have an established relationship in one country, you or the suppliers you rely upon may be forced to shift production to quickly adapt to the changing environment.
Outdoor businesses are finding themselves in a world where the importance of end product design, technology, branding and general economic drivers are not the only determinants of successful sales. As the outdoor market continues to globalize, anticipating and navigating the geopolitical trade climate can have a substantial impact on the success of your business. For those who have dealt firsthand with complicated trade issues, their relevance is completely obvious, but for many in the outdoor industry, it's rare that thoughts of trade ever enter our minds.
OIA will continue to be your hub for trade information, providing warnings and recommendations, and taking action on the most current trade developments to help your business understand the shifting ground in trade policy that one way or another impacts your business. If you would like to know more about trade issues or to send us your comments, go to www.outdoorindustry.org or email email@example.com.
SNEWS® and Outdoor Industry Association have teamed up to provide our readers with information updates from OIA. These updates will be published in SNEWS® regularly and will provide our readers with insights into OIA programs, benefits, initiatives and more that serve to provide a solid foundation for industry growth. If you are not already an OIA member, we encourage you to become one. For more information, go to www.outdoorindustry.org.