Apparel Sourcing Intelligence - Worldwide

Trump’s global trade policy: act like a New York garmento

The developed world depends almost entirely on imports from poorer countries for its clothing. The world’s biggest apparel importer looks certain to transform its attitude to importing that apparel

Since World War II, that flow of imports has been governed by a complex system of rules, generally agreed in laborious international negotiations. Till the early 1990s, those rules were intended to limit imports from poor to rich, and since then till now rules were widely modified to encourage the poor-to-rich flow.

Trading nations generally followed those rules almost to the letter, and are still involved in an ever more complex web of negotiations to modify them.

But British voters’ June decision to leave the EU, together with American voters’ November decision to elect Donald Trump on a platform containing many plans to rewrite those rules, threaten to change fundamentally the principles by which the trade is governed. Similar populist movements, especially in Europe, put further pressure on those principles.

Brexit and international trade

As far as international trade is concerned, Britain simply wants to find alternative preferential trading partners after it leaves the EU: its debate is about the legalities of leaving and of negotiating other trade deals.

This process keeps becoming more drawn out, and messier than Brexit advocates seemed to have envisaged: but there is currently no real pressure in Britain for an alternative approach to the current system of rules agreed with the rest of the world.

Trump thinks differently

Trump’s platform on international trade is different. His plan is, almost as soon as he’s inaugurated, to:

  • Walk away from negotiations on a Trans-Pacific Partnership some of America’s planned partners have been involved with for over a decade
  • Tell China it must devalue its currency or face immediate duty hikes
  • Renegotiate America’s trade agreement with Canada and Mexico
  • Pass legislation imposing punitive tariffs on goods produced by US businesses moving sourcing offshore – and another piece of legislation requiring employers to give priority to Americans in hiring.

Trump’s comments during his campaign have indicated he would take America out of any organisation imposing sanctions on the US for any of this, and it seems difficult under these circumstances to continue other trade negotiations the US is conducting, like the TTIP

America, it seems, is walking away from a carefully negotiated rules-based system to a system where one nation demands and expects others to agree. But in our view, so are many other countries – and some of Continental Europe’s populist movements.

This creates the likelihood of anti-US retaliation, may change the context in which the UK negotiates its EU exit, and creates real risks for our industry. Trump’s pre-election threat, for example, to impose 45% duties on Chinese imports if China fails to increase the value of the yuan could mean immediate 25% cost price increases on garments on their way to US retailers. His plan to renegotiate NAFTA could close the border – or trigger retaliatory Canadian tariffs – for US retailers and brands sending goods into Canada.

Trump’s code affects more than just Americans

Trump’s stance has wider effects: on the credibility for any other country of trade negotiations with the US, for example. Why would Britain want to start talks on a trade deal with a country that walks away from a deal its partners have spent ten years discussing?  Worse: why would anyone want a deal with a country whose laws penalise companies for buying abroad – which is what Trump’s End The Offshoring Act promises to do?

Since November 8, many US trade commentators have used arguments like this as evidence that Trump would change his plans. I think that completely misunderstands him.

He’s just learned that so-called “experts” – the pollsters, the media commentators and most Republican party strategists – don’t have his insights into US voter motivations. The more trade lobbyists tell each other his fire will soon go out, the more he’s likely to conclude their threats of Chinese retaliation are as deluded as Democrats thinking he’d lost the election.

Trump’s negotiating code isn’t just Trump’s  

Trump’s view of negotiations is surprisingly common these days. It’s essentially the standard approach of many governments outside the North Atlantic: it’s how China, Russia, Turkey, Argentina and India behave.  Partly because they believe they’ve been coming out of calm, rational negotiations on the wrong side for decades.

And it’s how the classic New York rag trade garmento acts: finding every excuse to knock another 1% off the price, demanding retrospective discounts long after a garment’s sold, inventing new grounds for chargebacks years after a supplier’s closed his books on a docket and then not paying the bills anyway.

It’s not based on fashionable ideas of win-win partnerships: it’s about exploiting the balance of power between buyer and seller in markets where there’s supplier over-capacity, and about recognising that often only one party can win.

It’s often the best way of getting the right deal for one side in a negotiation.

But it’s not the way Western governments have thought.

Till now.