Questions remain unanswered in L.A.’s apparel industry after President-elect Donald Trump declared that his administration plans to exercise the exit clause of the United States’ current North American Free Trade Agreement (NAFTA).
A longstanding critic of free trade agreements, Trump has already said that he plans to renegotiate the U.S. deal in NAFTA, sending the already declining clothing manufacturers in Southern California into further fear over its future, as many manufacturers are currently operating factories in Mexico.
Established in 1994, NAFTA allows free trade among Canada, Mexico and the U.S., which also exempts tariffs. The agreement has since prompted American auto, air conditioning and apparel industry to relocate their factories to Mexico where labor is less costly compared to the U.S. as minimum wage continues to rise.
Many of L.A.’s Korean-owned clothing manufacturers, which make up a large portion of the fashion district in downtown, are no exception to the potential effect of Trump’s NAFTA exit plans. Even premier denim brans, including True Religion, Hudson Jeans and Joe’s Jeans, use Mexico as their base for up to 70 percent of manufactured goods.
To put the affordability of operating a factory in Mexico into perspective, cost for manufacturing a pair of jeans is approximately $15, while it would cost $35 in L.A.
If NAFTA were to be no longer applicable to the U.S., American manufacturers would have to pay 16.8 percent of their total revenue on denim manufactured in Mexico and 32 percent for semisynthetic fabric.
Trump’s motive behind his disdain for NAFTA is in his yearning to force U.S.-owned manufacturing factories to return to the country. However, such a scenario may potentially drive down demand for American denim clothing, as a pair of jeans that was once only $30 per pair would cost $60.
For the time being, the apparel industry is taking the wait-and-see approach, after Trump’s comments relating to NAFTA was primarily about auto or air conditioning manufacturers. Tariffs on clothing is currently dictated by the “yarn forward” rule, which hints that as long as the U.S. apparel factories based in Mexico uses materials produced in the country, tariff on clothes is not expected to soar as greatly as it would for cars and other goods.
Meanwhile, some say that Trump’s claim over the U.S. losing five million jobs since 2000 due to NAFTA is only a one sided perspective. Since 1984, the in-house manufacturing in the U.S. has doubled. Another counterargument is that the loss of jobs is more attributable to automation of manufacturing than outsourcing factories to foreign countries.
Ultimately, Trump’s critics are suggesting that his intention behind opposing NAFTA is merely an attempt to send a message to the rest of North America.
By Moon Ho Kim