Apparel Costing for Duty/ Tariff Increases Proposed by President Trump- Overview & Considerations
Updated: Aug 17, 2021
Costing in any big business is generally a pretty complex process of weighing variables due to the international need of supply and demand. In order to shed light on President Trump proposed duty increase of goods coming from China, we need to look at data. Numbers and finance have a big impact on our consumer’s behaviors and ability to supply work. The supply chain must also have different mathematical configurations calculated, before we can get a clear idea of how much this will impact our economy. The costing in this article is more over a general overview vs. the actual numbers as the census doesn't have current employment sectors listed for 2016. This is not politically directed to any party affiliation, but more analysis of movement. This article is not a focus on party politics. More so a review of problem solving approaches to a large American concern.
Supply Chain Process: Reinvent the wheel, vs stability in current process
The first aspect we need to look at is a new supply chain model vs. current model. Organizations must configure labor/time/and fiscals of budgets for production currently. The model below is based on large stable companies such as Ralph Lauren or Nike.
We can see the processes between import/domestics will overlay itself for at least 1 year. What companies must consider is what the new costs will be to build the facilities in the United States. Meaning if it takes a year to set up, train, and develop product while producing overseas, companies will pay additional taxes, plus the cost to build new ventures. Eventually companies will cut jobs to a lot for this costly variable. We can already see companies gearing up for the hard road ahead by closing down the brick/mortar stores.
The United States reported on average 30 billion units of apparel crossed the port from China to the United States. Estimated costs per article/item, and timing based on 50% of the 30 billion units of apparel. This is supposing America can produce 15 billion units annually.
We can only set the costs up by defining units over time & training. The following is a breakdown from a global perspective and not defined by any one company. I used the most basic of items for a production time frame. The all American T-shirt.
TIME PER UNIT/HOURS WORKED
15 billion units x 32 minutes to sew= 480 billion minutes of production annually or 8 billion hours. In china this would mean 2,000 hours annually for each worker. For the 4 million people employed, based on International Labor Organization reports. America has about 200,000-280,000 sewers based on same reports from ILO/ Us Bureau of labor and stats. 100,000 individuals would need to become lead trainers and develop 2.2 million workers in a 1-2 years to match the timelines from Presidents team, 50% match to China GDP. This is a very hard number for any infrastructure to meet. The growth process may take up to 5-8 years.
America will need to build enough facilities to capacitate the production, storage, and space for overall production of half the apparel GDP.
In China the pay system is a bit different, lets use the metric of $7.00 hr. America the cost of living increase due to taxation will require the $15.00 hr. min. wage for projections
(metrics based on time to sew t-shirt vs GDP in apparel)
· China: $7 x 8 billion work hours. = $56 billion cost to make (higher pay estimate applied)
· USA: $15.00 x 8 billion work hours: $120 billion cost to make goods
· $64 billion in work if total production moved to USA cost to make
· If 50% of production moved to USA $15 x 4billion hours=$60billion
Cost to develop Work Force
Movement of the industry back to the United States would need to be done in a step process due to the amount of qualified people we have to train a multi-million-person workforce. The work force in the USA for sewing is 5% the size of China work force and the overall unemployed population in the USA is roughly 7.9 million people. The United States would need to grow the workforce by half of the China work force.
For example, if America was to train half of the China workforce (2million people) to sew and operate machinery, the individuals qualified to train would be educating 20 people a month to sew (one facility). Training groups would be pretty sizeable given the time frame the President team thinks is accommodating, but the income growth rate over economy numbers says the opposite. If we looked at his timeline for kicking in forced tax in 1 year, we would have only 100,000 qualified trainers for sewing, and 2 million people needed to meet 50% of the demand for apparel that China currently produces.
The following is the cost breakdown to train 20 people to sew in one month.
Trainer: Hourly rate $30.00hr x 120 hrs. a month= $3,600 monthly
New Trainee: $15.00 hr. x 120 hrs.= $1800 monthly x 20 people= $36,000
Average monthly training budget for 20 people a month would be $39,600. The overall cost to train 2 million apparel production workers would cost in total $70 billon -$4 trillion. This cost hits the company bottom line without incentives, as they will still pay duty while production moves to United States. Keep in mind that in 1990 the United States still had less than 1,000,000 employed in the cut/sew environment.
The companies that can set up shop on a large scale must also find space, order cutting tables, machinery, computers, and more. The average cost to build a sizable facility maybe close to $500,000.00 per location. Sewing machines even used are costly ($900-$25,000 depending on machine), including ventilation systems, cutting & pattern computer systems, light tables, and storage racks.
Total estimations REAL ESTATE/TRAINING/LABOR
First month cost
Real estate: $25,000 monthly rent
Equipment: $ 200,000
Cost to produce: $50,000
$270,000.00 for each facility in first month’s production. This is a fiscal that most companies will be paying on top of overseas production.
Total estimates to get the apparel production in America done in a two-year cycle would equate out to be $80 billion -12.4 trillion dollars for the entire industry.
A two year cycle is not enough time to train the number of workers we need to meet 50% of China workforce. Government could provide smaller business grants and taxes to companies that can also capacitate smaller production numbers, as this will enhance the small business population. This is also more helpful as the growing trend of China brands are opening shop in the states.
Other Costing Considerations
Costing considerations can be varied. Many times the item maybe produced in the states, but some element will need to be sourced from overseas partners. This can actually increase the items overall cost even more. The following are cost sheets for different forms of taxation. For example the textile tax is different than sewn goods, down filled goods, or accessories. The harmonized tariff code is pretty vast, so tax can come in a variety of ways.
Before you can build it is sometimes valuable to set conditions that push the required labor growth ahead. Tax penalty's should hit companies directly on a GDP import taxation ratio. With a fixed review of COGS to allow for IRS to monitor pricing practices that would cuase a consumer to pay the penalty via goods.
Overall, the road ahead will be expensive and yet needed.