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Making decisions in an uncertain trade environment

January 1st, 2020 / By: / Advanced Textiles, Markets

By Marie O’Mahony

Editor’s note: The issue of U.S. trade is unusually dynamic and evolving today. The majority of this article represents information available when the speakers presented at IFAI Expo in October 2019. 

With current international trade in a persistent state of flux, it’s tempting for the advanced textiles industry to stand by and wait until things stabilize. But business doesn’t stand still, and whether you are an energetic 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. 

Presentations at IFAI Expo in early October 2019 provided a forum to catch up on progress and likely scenarios. The U.S./China trade war has captured the headlines, but tariff battles with Europe stand to create more uncertainty on the trade front. The White House, however, claims progress toward a resolution with China. 

Exhibitors, presenters and delegates at IFAI Expo 2019 offered their thoughts on trade issues, revealing insights borne out by experience. Despite the uncertainties, most are seeing opportunities to forge new connections both nationally and globally. That said, all agreed that remaining informed and making preparations for different outcomes has never been more necessary. Photos: Mark Skalny Photography.

The New York Times reported in October 2019 that U.S. Treasury Secretary Steven Mnuchin said the United States and China were “on track toward signing the first phase of a trade agreement next month.” That was supposed to happen in Chile at the Asia-Pacific Economic Cooperation summit, but the Chilean government canceled the event because of unrest in that country. 

The agreement, still being finalized, “would prevent future tariff increases and lock in intellectual property protections in China, as well as ensure Chinese purchases of American agriculture,” the article said. 

Discussion at Expo

In the first of two talks, Sara Beatty, president of Whitehaven Trade Advisors, 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 still could choose to sit it out and see what happens with the question of impeachment and if more favorable terms might be had with a successor to President Trump. 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), both Industrial Fabrics Association International divisions, 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 specialized niches to broad market segments. 

“Over 90 percent of what we import are finished goods, rather than intermediate imports necessary for the sector,” says 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 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 “gray areas” where a material or component may be available in the U.S., but not in the form or to the scale required. 

Exhibitors and delegates at Expo offered their thoughts on trade issues, revealing insights borne out by experience. There are glitches that manufacturers were keen to see addressed. Participants at Expo agreed with presenter Tantillo that China’s currency devaluation has ensured it remains cheaper for coated fabrics, despite the tariffs. Thomas J. Olsen, senior director of product marketing at Berry Global Inc. in Charlotte, N.C., used the company’s filtration products as an example. Much of it is sold to China, and so it is 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 products. This is especially true when comparing tariffs that may be applied to a lighter material, which is then used in high-value end products. 

Unintended consequences

There are unintended consequences to the tariffs imposed as a result of such an unprecedented trade war with China. Michael A. Murray, of North Carolina-based DeSales Trading Co. Inc., recounted a recent conversation with a manufacturer who pointed to the dumping of Chinese products 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 is too low, allowing materials and components into the country to the detriment of small- and medium-sized enterprises (SMEs) suppliers, in particular. Murray lamented that the government is not applying more rigor to guarding against tariff avoidance, pointing to some U.S. manufacturers he sees using the North American Free Trade Agreement (NAFTA) 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 Inc., in Mendota Heights, Minn., 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 products. Minnesota Knitting Mills uses materials sourced in North America, so import tariffs on raw materials do not affect the company directly. However, it cannot source dyes 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. Kytola, Moore and many others questioned at IFAI Expo say the biggest obstacle they face is not knowing what is going to happen. 

Following a trade agreement in principle, The New York Times reporters 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 Expo 2019 were noticeably forward-looking, acknowledging that while there will be changes ahead, they are also seeing opportunities to forge new connections both nationally and globally. Faced with uncertainties, 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, academic and a frequent contributor to Specialty Fabrics Review. She lives in Toronto, Canada. 


SIDEBAR: IFAI Lobbying Efforts

IFAI’s 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. These divisions represent the very diverse interests and priorities of the industry, covering a range of sizes and market interests from highly specialized niches to broad market segments. For more information about IFAI’s advocacy efforts, visit www.ifai.com.