Material Innovation Initiative was recently joined by Josh Teitelbaum for a webinar on Tariffs, Policy, and Trade for fibers and textiles in the U.S.. With more innovators becoming commercial in the last 12 months, we thought it was time to revisit policy and trade with expert Josh Teitlebaum. Josh is the Senior Counsel on International Trade Policy at Akin Gump. Josh also served in the Obama Administration as the Deputy Assistant Secretary of Commerce for Textiles and Consumer Goods where he was the lead Textiles and Apparel negotiator during the Trans-Pacific Partnership negotiations.

Key areas covered in this webinar include:

• What you need to know about how fibers affect duties.
• Tariff disparities between bio-based materials, natural fibers, and man-made fibers.
• Is there any way to communicate with Customs officials for clarity or inaccuracies?
• What are duty-free opportunities?
• Has anything changed with these policies over the last 10 years?
• What, if anything, can be done to update or change existing policy?

The Basics of Tariffs on Apparel and Footwear

Josh kicked his presentation off by covering the basics of tariffs on apparel and footwear. These tariffs play a significant role in the industry, impacting everything from production costs to retail prices. 95% of apparel and 98% of footwear sold in the United States is imported. Animal-based materials ensue much lower tariffs than natural or synthetic materials, resulting in those types of products being inadvertently incentivized. The existing system ends up inadvertently penalizing next-gen materials, an unsatisfactory situation given their extreme environmental benefits compared to incumbent and even current-gen (petrochemical-derived) materials.

 

“The current tariff code does not take into account the environmental impact or footprint of the fiber in the apparel” – Josh Teitelbaum

 

The harmonized tariff schedule (HTS) was also discussed, highlighting the various categories and the disparities that exist within it. Tariffs on apparel and footwear are notably higher, and sometimes inordinately higher, than tariffs on other common goods. The average tariff on non-clothing and non-footwear goods coming into the U.S. is less than 1%, the trade weighted tariff on footwear is 11.4%, but it can also peak as high as 67.5%! These disparities can create challenges for businesses that deal with a wide range of products, as different items may be subject to different tariff rates. Josh explained the interesting history behind these systemic tariff disparities rooted in outdated intentions and systems.

Implications of Tariffs on the Industry

Tariffs have profound implications for the apparel and footwear industry, influencing both economic and operational aspects. For businesses, tariffs can increase production costs, which often translates to higher prices for consumers. This can affect demand and profitability, especially for companies operating on small margins. Josh covered how these economic pressures force businesses to strategize and adapt, whether through adjusting supply chains, seeking tariff exemptions, or lobbying for policy changes. 

Josh also dove into duty free possibilities. Duty free opportunities for clothes and shoes exist if they are imported from certain lesser developed countries of Free-Trade agreement partners.

Future Outlook, Trends and Questions

Looking ahead, Josh and Thomasine explored potential future developments in tariff policies and their implications for the apparel and footwear industry. They discussed emerging trends in material innovation, and the need for continued research and development to create sustainable and cost-effective materials. Moreover, they highlighted the importance of staying agile and adaptive, as future trade policies may shift in response to geopolitical changes and environmental considerations. 

Thomasine and Josh answered audience questions including but not limited to the state of tariffs on apparel in Europe, and how next-gen materials, and other environmentally preferable textiles, do not yet have a defined place in the apparel and footwear tariff classification system. In Europe, Josh hypothesized, apparel and footwear tariffs are higher than on general goods, but perhaps not quite as high as in the U.S.. Additionally, Europe has a Generalized System of Preferences (GSP) program that allows for duty-free treatment of goods from developing countries, including the importation of apparel from such countries. Another question addressed if the tariffs apply to finished goods only or if fibers and fabrics also carry a tariff, which they do, see 25:30 in the recording above for Josh’s response which details which chapters of the HTS code this falls under. 

 

If you liked this, you might find our webinar on How To Price Your Material of interest.

To get involved in our future webinars, check out our upcoming sessions here.