Japanese Media: The Trade War Initiated By The United States Brings Dividends To Garment Producing Countries

- Jan 02, 2019 -

The media reported on December 18 that the trade war initiated by the Trump administration of the United States was good for clothing manufacturing countries such as Bangladesh and Vietnam. This is because the movement of the production base from China, the world's largest garment exporter, to neighboring countries has accelerated. At present, clothing is not in the list of goods that the United States imposes additional tariffs on China, but Trump hints that it may extend the object of additional tariffs to all Chinese exports to the United States. The move to move the garment factory out of China is likely to expand further.

In 2017, China’s garment exports amounted to US$158.4 billion, accounting for more than 30% of the global market share, but it was a downward trend compared with 40% in the early 2010s. Due to the increase in labor costs in China, various garment enterprises have gradually shifted their production bases to neighboring countries. Bangladesh's global market share has risen to 6.4%, ranking second, and Vietnam is 5.8%, ranking third. The recent increase in garment exports between the two countries is believed to reflect an increase in production at its existing plants.

Bangladesh’s garment exports to the United States in July-September 2018 increased by 14% year-on-year to US$1.484 billion. In the year to June 2018, the growth rate was only 3%. The Vietnam Textile Association predicts that exports of apparel and fiber-related products in the country will increase by 16% year-on-year in 2018, reaching a record $36 billion. American clothing manufacturers have dispersed their procurement from China to other countries, which has become a positive factor for Bangladesh and Vietnam.

What the two countries have in common is the abundant labor force and low labor costs. Bangladesh has a population of 160 million and labor costs are cheaper than in China and Southeast Asia. Garment companies such as Inditex of Spain, Hennes & Mauritz (H&M) of Sweden, and Fast Retailing of Uniqlo, which operate "ZARA", have many cooperative factories in the country. Vietnam’s labor costs are less than half that of major Chinese cities such as Shanghai and Guangzhou.

Coupled with the recent trade war risk, the previously hesitant clothing companies "have begun to shift production bases" (large logistics companies in Vietnam).

In addition, the US government and Congress recently passed the 2019 National Defense Authorization Act in order to exclude Chinese-made communication equipment from the government procurement list. The law stipulates that after August 13, 2020, if any company in the world uses products from five companies, such as Huawei, it will not be able to conduct any transactions with US government agencies.

Many of the clothing companies and factories that operate in China use the communication equipment of these five companies. People familiar with the US National Defense Authorization Act said that "after August 2020, these companies and factories will not be able to supply employee uniforms to US government agencies." If found to be reported, in the worst case, these companies and factories will be sanctioned by the US government, "cannot use the US dollar for international settlement."

For apparel companies, it is safe to move factories from China to other countries and build a system that does not require the use of these five corporate communications equipment and surveillance cameras.

Transferring production bases from China will bring great benefits to all countries. Clothing accounts for 80% of Bangladesh's exports, and the fiber and apparel industry accounts for 20% of the country's GDP. Vietnam’s clothing-related industries also account for more than 10% of GDP and are major industries.

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