Chinese Dominance of Clothing Trade Dented by Covid-19, Trade War

The Covid-19 pandemic has ravaged the global clothing industry. The question is how it will emerge when the world economy goes back to normal sometime this year or next. When will consumers be ready to shop for clothes with the same abandon as this past decade? And when they do, will they buy from the same retailers purchasing from the same supply chains? There are many unknows, but already, it seems certain that other Asian nations will chip away at Chinese dominance of the sector.

As the world’s big consumer markets put away their wallets, they are slashing imports of less-essential items, including new clothing. Big brick European and American retailers have been cancelling orders en masse as they shut shop. JC Penney, one of America’s biggest clothing retailers, even filed for bankruptcy. Online sellers are faring a bit better but are coping with slashes in demand as people have less money in their pockets to spend.

The US, the world’s biggest single buyer, cut imports of apparel 18.9%, to $21.7 billion in the first four months of 2020, according to Trade Data Monitor, the world’s premier source of trade statistics. That is happening pretty much everywhere. Japan reduced imports 8.1% to $8.3 billion.

The loss of appetite is damaging exporters. Shipments from virtually every significant apparel manufactured have declined sharply so far in 2020, according to TDM. In the first quarter of 2020, Chinese garment exports fell 21.1% to $21.3 billion. Turkey: down 7.4% to $3.7 billion. Indonesia: down 6.7% to 2 billion. A blood bath for a manufacturing sector that employs millions and underpins the fledgling prosperity of many developing countries.

The pain is potentially massive and widespread. As factories closed and retailers cancelled or suspended contracts this year because of the pandemic, often invoking force majeure, the top Asian producers, including China, Bangladesh and Pakistan, published a statement asking importers to “carefully consider all potential impacts on workers, small businesses in the supply chain when taking significant purchasing decisions” and to “honour the terms of purchasing contracts, fulfil obligations therein, and not re-negotiate price or payment terms.”

China exports roughly one-third of all the apparel exports in the world. Since the 1980s, apparel exports have been the pillar of the country’s global export apparatus. By 2000, the year before China joined the World Trade Organization, it was already the world’s top exporter of garments, with $32.3 billion shipped all over the world. Its WTO membership and joining the WTO’s special tariff agreement on textiles in 2005 opened the floodgates for Chinese exports to really boom, even as it expanded its economy into the further reaches of heavy industry and advanced technology. In 2019, it exported a whopping $138 billion worth, far ahead of second-place Germany at $23.8 billion.

Its thousands of factories are not suddenly going to close, because of Covid-19 or any other reason, but they are almost certain to see their edge whittled away in favour of other Asian competitors. Bangladesh, for example, in 2019 exported $34.7 billion worth of apparel, up from $33.3 billion in 2018 and $30.3 billion in 2017. Vietnam shipped $31.4 billion worth, up from $28.8 billion in 2018 and $25.6 billion in 2017, according to TDM.

The Covid-19 pandemic comes on top of several problems for China. Wages in the country are increasing, boosting the incentive to switch production to Bangladesh, Vietnam, Cambodia, and India. And the trade war with the US has motivated retailers to move more sources of supply to those countries to minimize risk.

US Top Import Sources, Apparel (HS 61, 62); Billions USD; Jan-Apr 2019, Jan-Apr 2020; China, Vietnam, Bangladesh, Indonesia, India; Source: US Census Bureau via Trade Data Monitor LLC; June 15, 2020

In the first four months of 2020, the U.S. reduced imports of apparel from China, its biggest source, by 43.4% to $4.19 billion. Shipments from number two Vietnam fell only 1.4% to $4.15 billion. And imports from number three Bangladesh rose 1.9% to $2 billion.

That seems yet another example of how the Trump-era U.S.-China trade war is helping to permanently reshape global trade patterns. Covid-19, as it’s doing to so many parts of the global economy, is simply shaking things up even more.