America’s strange trade policy makes your jeans more expensive than they should be

America doesn't make much clothing anymore. But the government doesn't act like it: We throw up trade barriers on imported goods from baseball caps to socks, making them 10 to 30 percent expensive for U.S. retailers.* Why would we do that, when Americans don't get many jobs out of the bargain?

This contradiction -- trade protection for an industry that is hardly one where the United States competes -- is a study in how economic change can outpace policy. And the fact that this situation isn't likely to change anytime soon, even with one of the biggest trade deals in recent history nearing completion, shows how political inertia can leave outdated policies in place for a very long time.

This week, Asian leaders convened in Bali, Indonesia in part to push forward the last pieces of a giant trade deal called the Trans-Pacific Partnership that's been under negotiation since 2009. (President Obama couldn't go because America is in shambles). There are a ton of issues still left to resolve, though. One of the biggest fights is over how to deal with apparel, which big clothing brands would like to produce more of in low-cost Asia -- without the high tariffs that make your blue jeans significantly more expensive than they otherwise might be.

Now, the United States used to have very strong textile and apparel manufacturing industries, employing some 2.5 million people in the mid-1970s. With the rise of large factories in developing countries, and free-trade agreements like NAFTA, those have almost disappeared in the United States. Seventy percent of the clothing Americans bought in 1980 was made in the United States; now it's 2 percent. Here's one version of what that looks like:


This is how it started... (Bureau of Labor Statistics)

And here's up to 2011:


And this is where we are. (Bureau of Labor Statistics)

Generally speaking, the disappearance of domestic manufacturing has meant that companies fight more for free trade than for preferential treatment for American-made goods, which would help American workers. Thea Lee, an economist with the AFL-CIO, has watched industry support for trade protections evaporate as offshoring became the norm.

"You've just seen ally after ally on the domestic manufacturing side say 'oh, we're not doing that anymore, we're also multinational now, we've joined the other side,'" she says. Textile magnate Roger Milliken, for example, used to throw money around in Washington on behalf of American industry in trade negotiations -- but gradually stopped. "The company, in order to survive, just kept moving more and more stuff overseas, and became less interested," says Lee.

Nevertheless, the remaining small textile manufacturers have managed to maintain an important advantage in most big free trade agreements: the requirement that all materials come either from America or other countries party to the agreement in order to come back to the U.S. duty-free, on the theory that trade deals should reward the countries that also agree to abide by its rules, like environmental and labor standards. So, for example, under NAFTA, importers of jeans produced in Mexico will still pay the 16 percent jeans tariff if the cotton originally came from China. That's called a "yarn-forward rule of origin."

It's an expensive policy for American consumers. Overall, we paid $10.42 billion in tariffs on clothing in 2011, on $70 billion in imports, according to the think tank Progressive Economy -- a much higher percentage than almost any other kind of goods. That doesn't make sense, considering the tiny number of jobs that the clothing industry supports in the United States. Even the movement toward bringing some production back home is highly capital-intensive, more reliant on machines than humans.

So why is it still the starting point for all U.S. trade negotiations? Center for Global Development senior fellow Kim Elliott says the biggest domestic textile defenders have been Republicans, and have managed to hold the line -- like how Maine's Republican senators have protected New Balance against Oregon-based importer Nike. (Though there are quite a few Democratic protectionists as well, like the ones on this letter  from back in July).

"It's kind of a bit of a puzzle that even under a Democratic president, the industry manages to maintain its protectionist barriers," Elliott says. "It's a classic story of the collective action problem. Representatives from those districts are going to fight very hard. And you or I as consumers would get some benefit from lower tariffs, but we're not going to vote on it. It's that imbalance of interests."

Today's big clothing brands, like the Gap and Zara's parent Inditex, hate those rules. Most of them source clothes from contract manufacturers from all over the world, and the fast-moving world of fashion demands utter flexibility to respond to the latest trend with an order from Pakistan, or Turkey, or Bangladesh. When they're geographically confined by a trade agreement, they say they'll generally just buy from outside it, and pass on the cost of the tariff to their customers. Perversely, that's meant that trade has grown faster with countries that haven't signed trade agreements than with those that have:


(TPP Apparel Coalition)

The global apparel industry has pushed hard to make the Asia trade deal different. CEOs descended on the Hill a few weeks ago to press their case: Many big companies are looking to buy more from Asia, but say that countries in the Trans-Pacific Partnership just don't produce the cotton, polyester, and other raw materials they need to make the clothes they sell. If they could buy that stuff from China, manufacture it in Vietnam, and import it into the United States duty free, they argue everyone would be better off.

"We're looking at the Trans-Pacific Partnership as an opportunity to pivot towards Asia," said an executive with a large American clothing brand, who declined to be named in the midst of sensitive negotiations. "How do we do that? We don't want to have to ship our inputs from the U.S. all the way across the ocean to Vietnam, and then all the way back to the U.S."

Some reports indicate that U.S. negotiators might have cut a side deal with Vietnam to allow some kinds of fibers as exceptions. If they don't, manufacturers say nothing will change.

"We would just ignore the agreement and not use it, because we wouldn't be able to find yarn that met the agreement," the executive said.

Which just means you'll continue to pay a few dollars* extra on top of taxes for your jeans to the U.S. Treasury.

* Corrected to reflect the fact that tariffs are applied on goods as they arrive in the United States, before retailers mark up the price and add taxes. 

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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