Introduction

From creators to shoppers, every person within the realm of fashion is part of an expansive infrastructure with diverse contributions. Crossing the globe via intricate networks, fashion supply chains merge resources, talent, and innovative design to produce the attire we wear. Governments’ impositions on international commerce – such as levies, taxes, and regulations – cause frequent disruptions in the supply chain system. Examining the fashion industry’s complex interaction with regulatory frameworks, our exploration whispers wisdom about how tariffs, fees, and treaties shape the sophisticated worldwide fashion commodity flow.

Fashion Supply Chain: A Global Network

Given the vastness of the worldwide fashion supply chain, knowledge of its scope and dynamics must come first when assessing how trade laws influence product movement and logistics. Multiply elements across continents; starting with India’s cotton fields and ending at exclusive stores in New York City, a singular piece goes through myriad transformations. Comprising a tangle of vendors, artisans, and middlemen, the foundation of the fashion business rests upon this infrastructure.

Dissecting the Connection Between Trade Policies and Fashion

Trade policies have far-reaching consequences for the fashion sector. Tariffs and customs duties wield significant influence, impacting production costs, sourcing decisions, and ultimately, consumer prices. Trade agreements, including free trade agreements, play a pivotal role in shaping market access and supply chain efficiency. Sustainability and ethical sourcing are increasingly intertwined with trade policies, as they can incentivize eco-friendly practices and compliance with environmental and labour regulations. Moreover, the fashion industry must navigate geopolitical risks, which have the potential to disrupt supply chains and prompt strategic sourcing decisions. In response to these challenges, fashion brands are proactively building resilient supply chains, incorporating scenario planning, flexibility, transparency, and sustainability practices to adapt to a dynamic trade environment and ensure continued success.

Trade Policies and Their Impact

1. Tariffs: Disrupting Sourcing Decisions

Tariffs refer to levies paid on international trade items during import or export. Duties can be levied based on product value ad valorem or weight with specific rules. Being global in scope, fashion faces challenges related to tariffs. Raised tariffs can cause a spike in production expenses and disruptive supply chain impacts.
Alternatively, if a fashion label faces hefty tariffs while exporting clothing from China to the US, relocating manufacturing to a country with lower tariffs may preserve it’s competitiveness. From jobs to economies and supply chains, this decision leaves an indelible mark.[1] Gereffi & Fernandez-Stark, 2010[2] provide valuable insights into the dynamics of the apparel value chain and its vulnerability to trade disruptions and economic crises. Significant tariffs on fashion imports may hinder sourcing choices within the global fashion supply chain. In light of tariff hikes, brands may look beyond traditional sources and investigate regions with lower tariffs. This shift in sourcing decisions impacts several key aspects of the supply chain:

• Relocation of Production: In search of more affordable tariffs, fashion brands may consider relocation. Consider Vietnam or Cambodia, where tariff rates are lower if a U.S.-based brand must contend with hefty tariffs on garments produced in China. Two countries might experience alterations in job markets and economies due to this relocation, with both being impacted.
• Supply Chain Restructuring: Evolving with new sourcing areas necessitates efficient supply chain optimization. Adapting to novel trade lanes and connections, businesses might face disruptive alterations and lag times.
• Shift in Economic Patterns: As fashion brands relocate manufacturing to jurisdictions with lower import taxes, they unwittingly reshape the economic terrain. Economic growth results from increased manufacturing activity for some countries, whereas others witness a decline in export earnings and employment opportunities.

2. Taxes and Duties: Influencing Cost Structures

Besides tariffs, fashion firms encounter a host of import/export taxes and duties. Taxes such as VAT, customs duties, and excise taxes significantly affect a product’s cost structure. Furthermore, fashion brands face several taxes and duties alongside tariffs in international trade. These financial considerations play a pivotal role in shaping the cost structure of fashion products:

• Value-Added Taxes (VAT): A tax on the value added to goods at each phase of production or distribution, VAT is a consumption tax. Countries possess varying VAT rates, rendering complex calculations for fashion brands. The hike in VAT rate directly impacts the final retail price of fashion items, majorly affecting consumers’ shopping habits.
• Customs Duties: Taxes levied on imported goods, customs duties consider the value, quantity, or weight of the item. Fashion firms must keep a watchful eye on customs duties when importing raw materials or finished garments, as these expenses can substantially influence the appeal of their products in the international marketplace.
• Excise Taxes: Selective taxes are applied to specific products, like indulgences or particular fabrics. Designed to deter consumption of certain goods, these taxes are. Luxury and specialized item producers need to consider the expense of excise taxes when determining their pricing strategies, possibly narrowing the market for particular goods.

3. Trade Agreements: Facilitating or Hindering Supply Chain Efficiency

FTAs and regional trade pacts can either enhance or obstruct the fashion supply chain. By eliminating or reducing tariffs and trade barriers, agreements such as NAFTA or CPTPP make it simpler for fashion companies to conduct cross-border operations. Shifts in trade policies or withdrawals from agreements can significantly disrupt existing supply chains and influence sourcing choices.[3] Trade agreements, such as free trade agreements (FTAs) and regional trade pacts play a role in shaping the efficiency of supply chains in the fashion industry:

• Enhancing Cross-Border Operations: FTAs work towards reducing or eliminating tariffs and trade barriers among member countries. This simplifies cross-border operations for fashion companies leading to cost savings, delivery times and improved market access.
• Uncertainty Surrounding Trade Agreements: However changes in trade policies or withdrawal from trade agreements can disrupt established supply chains. Fashion brands that heavily rely on these agreements may face uncertainties regarding their supply chain strategies, which could prompt them to reassess their sourcing and distribution options.
• Strategic Global Sourcing: Trade agreements also impact a brand’s sourcing strategy. Brands may strategically source materials and production from countries that are part of trade agreements to optimize cost efficiency and expand market reach.

Shift Toward Sustainable Fashion

More than simply influencing the fashion industry’s economics, trade policies also affect sustainability. Under growing scrutiny, the fashion world is facing criticism for its ecological and social effects. Trade policies can play a role in promoting or hindering sustainability efforts in the following ways:

1. Sourcing Decisions: Understanding tariffs and trade agreements helps fashion brands decide where to find materials and produce goods. By encouraging sustainable practices through policy in sourcing nations, positive change in the industry can be driven.
2. Regulatory Compliance: Environmental standards, labour rights, and fair trade practices may be part of trade policies. Compliance plays a crucial role in decision-making for fashion brands, being a substantial consideration.

Nexus between Trade and Environmental Stewardship

The fashion sector faces a precarious predicament as it navigates financial stability and ethical standards. How trade policies address these challenges determines the outcome.

1. Impact on Sustainable Sourcing: Trending in the fashion industry is the responsible procurement of raw materials like organic cotton and recycled polyester. Trade policies significantly impact the supply and pricing of essential commodities. For example, tariffs levied on sustainable materials, may discourage their uptake, while trade agreements promoting environmentally friendly sourcing can prompt fashion companies to adopt environmentally conscious strategies.
2. Labour and Ethical Considerations: Trade policies have a profound effect on labour conditions in the fashion supply chain. Lower labour costs in certain nations make them appealing as manufacturing sites for cost-sensitive fashion industry players. However, well-crafted trade agreements can encourage ethical sourcing and production practices by incorporating provisions for fair labour standards.
3. Circular Fashion: In a circular fashion, waste reduction is achieved by recycling and upcycling, which is gaining popularity. Used clothing, textiles, and recyclables experience border crossings influenced by trade policies. Either supporting or hindering the circular economy, government regulations impact imports and exports.

Consumer Awareness and Preferences

Crucial elements driving the fashion sector’s reaction to trade regulations are consumer attitudes and know-how. Customers demand greater transparency, ethically sourced materials, and long-term sustainability in their purchases. Consumer expectations and buying decisions are influenced by agreements and regulations prioritizing moral and environmentally friendly practices.

Managing the Balance of Trade Policy and Economic Growth

While trade policies can pose challenges to the fashion industry’s sustainability efforts, they also present opportunities for positive change:

1. Aligning Incentives: Using trade policies, governments can motivate environmentally responsible actions. Some possible actions include providing preferential tariffs for sustainable materials and offering tax breaks to businesses investing in green technologies.
2. Transparency and Reporting: Fashion companies may be compelled to divulge information about their supply chain practices, including environmental and labour assessments. Greater insight enables informed decision-making and accountability.
3. Collaboration: A collective effort between these entities can foster environmentally conscious trade practices in the fashion industry. Industry-wide accreditation, audits of companies, and implementation of top procedures are all possible through this partnership.
4. Consumer Education: Utilizing trade policies to encourage consumer understanding of the interrelated issues of fashion choices’ social and environmental effects. Encouragement for responsible consumption arises from this, fostering growth in sustainable markets.

The Fashion Industry’s Response to Trade Policies

The fashion industry has shown adaptability and strategic adjustments, in response to trade policies. Brands have diversified their sourcing methods to minimize the risks associated with tariffs and have also embraced production as a response to reshoring initiatives. Prioritizing supply chain transparency and sustainability integration has become crucial in order to align with trade agreements. Fashion brands are managing tariff costs strategically by expanding into markets that offer trade policies all while educating consumers about the impacts of these policies. The industry has witnessed the emergence of models such as fashion and digital transformation and collaboration through trade associations plays a vital role, in advocating for beneficial policies. To effectively navigate uncertainties stemming from trade policies brands conduct risk assessments ensure customs compliance and focus on building supply chains.

Conclusion

Evidenced by the intricate web of global fashion supply chains, our world is profoundly connected. A judicious combination of components, labour, and consumer preferences drives industry growth. Using tariffs, taxes, and trade agreements, trade policies mould this supply chain. Relevant parties, including designers, producers, and consumers, must comprehend the ramifications within the fashion industry.

As the fashion sector strives toward a greener and more transparent future, trade rules must evolve accordingly. In a world beyond just garments, fashion now has economic, social, and environmental implications on a global level. Collaboration among governments, industry leaders, and consumers are essential to foster an environmentally conscious and ethical fashion sector.

[1] World Trade Organization (WTO), “Textiles: Tariffs and Trade” https://www.wto.org/english/tratop_e/texti_e/texintro_e.htm

[2] Gereffi, G., & Fernandez-Stark, K. (2010). The Global Apparel Value Chain, Trade, and the Crisis: Challenges and Opportunities for Developing Countries. The World Bank

[3] United States International Trade Commission, Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors, investigation no. TPA-105- 001, USITC Publication 4607, May 2016

Author: KANCHI SINGH RAJPUT