Dispelling the Section 301 China Tariff-Inflation Myth
There is a misconception that the Section 301 China tariffs are raising consumer prices for apparel and contributing to inflation in the U.S. But nothing could be further from the truth, and new data and studies dispelling that notion come at a critical time in U.S. trade policy.
In 2018, the Trump administration took the extraordinary action to impose emergency Section 301 tariffs on Chinese imports to combat China’s transgression of intellectual property theft. And the Biden Administration followed suit, maintaining the tariffs despite intense lobbying from powerful import interests in Washington.
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Now, we are at a consequential juncture in the government’s ongoing review of the tariffs, and a decision on whether to extend or modify the tariffs on these imports is expected soon.
The Office of the U.S. Trade Representative (USTR) is reportedly close to issuing its four-year statutory review of the penalty tariffs, and this decision will have wide-ranging implications for essential U.S. manufacturing sectors including the domestic textile industry.
Indeed, the tariffs on textiles and apparel are helping, by and large, to promote a more level playing field for American textile manufacturers and other sectors and serve as a tangible policy response to China’s unfair trade practices.
The argument made by certain import groups that American consumers ultimately pay higher prices for clothing sold at retail because of the tariffs ignores some essential market realities and belies underlying data. Namely, since 2018, import prices from China have fallen, not risen, as some claim. At the same time, a strong U.S. dollar played a significant role in deflating prices of imported merchandise.
As detailed in an economic study released by Werner International in 2022, U.S. import prices for apparel from China have dropped 25 percent since 2019 and 50 percent since 2011. The price declines experienced in the U.S., but not in other major markets like the European Union, are likely attributable to China’s desire to undermine the impact of the Section 301 penalty duties and other enforcement actions in the apparel sector, such as the Uyghur Forced Labor Prevention Act (UFLPA).
In other words, China has been dropping its prices to convince sourcing agents to remain loyal despite the risks, and in order to hold onto its $40 billion in textile and apparel exports to the United States last year. This inexplicable decrease in apparel pricing once again demonstrates the unparalleled capability of China’s central government to artificially lower product pricing to dominate the U.S. and global markets for these goods.
The downward price trajectory is also reflected in the most recent government data. While U.S. textile and apparel imports from China for the 12- month period through October 2023 were down 39 percent by value compared to 2018, they were down just 10 percent by quantity. The dollar value per square meter equivalent of textiles and apparel from China fell 30 percent over this period.
Further, the U.S. International Trade Commission (ITC) studied the effect of 301 tariffs on import prices of apparel and other consumer products in 2023 and found either no or minimal increases for importers.
Notably, testimony given to the ITC by businesses and trade associations, outlined in the report, suggested that these actions boosted domestic manufacturing “without substantially increasing prices for final consumers.” China was even found to have dropped its pre-tariff prices on apparel from 2016 to 2021.
U.S. consumers are spending only 40 percent as much on clothing today as they were spending in 1960. In the 1960s, consumers spent 10.4 percent of a typical household’s annual budget on clothing, versus today at approximately 3.5 percent.
So, we have seen a meteoric rise in the amount of imported apparel and home textile products consumers buy, yet we are, in fact, spending less.
In the meantime, the United States has gone from manufacturing 95 percent of its apparel in 1960 down to 2 percent. However, in recent years, the U.S. textile industry has recalibrated supply chains and made new investments to build strong, vibrant co-production ties with our free-trade agreement partners in the Western Hemisphere that play by the rules to survive this global economic shift.
Further investments and production can be unleashed with an increased 301 penalty tariff rate for apparel, while granting exclusions for manufacturing inputs and machinery not available domestically, among other necessary actions. Ultimately, if these actions can produce tangible reforms to China’s IP and other unfair trade practices, showing the world the United States is serious about trade enforcement, the sky is the limit for the expanded contributions the U.S. textile industry stands to make to the U.S. economy.
For these reasons, we need to double down and address China’s massive subsidization of its exports and the forced labor practices that have led to a race to the bottom and are undermining domestic manufacturers.
In a formal submission filed by the National Council of Textile Organizations and the U.S. Industrial and Narrow Fabrics Institute to USTR, we expressed strong support for the continuation of current Section 301 penalty tariffs on finished textiles and apparel imports from China and further outlined the effectiveness of U.S. tariff actions.
The bottom line is tariffs didn’t cause inflation and cutting them isn’t the solution on the trade front or the inflation front. They give us a chance to compete and invest in the U.S. and help bolster our Western Hemisphere trade partners.
To further reward China by canceling the tariffs now under the guise of “helping consumers” would be an ill-advised policy decision, and we appreciate that the Biden administration has stood firm on the penalty tariffs amid these frenzied calls.
There is a historic opportunity here as it relates to U.S. trade policy with regard to China; maintaining tariffs on apparel and textiles imports plays a pivotal role in the future of our vital domestic manufacturing base.
Kimberly Glas is the president and CEO of the National Council of Textile Organizations and former Commerce deputy assistant secretary for textiles and apparel.
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