The New Tariff Policy Is About To Come Into Effect, Which Helps Clothing Businesses Overcome Their Difficulties.

Brand Company and retailers will usher in a new tariff policy as early as next month, when the cost of imports of most garments and footwear made in China will increase by 25%, but businesses can take some measures to reduce tariff shocks.

Set up a new production line in other countries

It is impossible for the major garment brands to move their production business away from China in the short term, thus avoiding tariffs completely.

Because it will take at least a couple of months to build new production lines in India, Vietnam or Bangladesh, and there is no guarantee that new partners can deliver products at the same quality, cost and speed.

Clothing companies also need to realize that the US government may reach some sort of agreement with the Chinese government and then abolish tariffs. If rashly resumes the supply chain, it may suffer a great deal.

Over the years, many garment brands have moved some of their production business out of China, because the manufacturing costs in China are slowly rising.

J.C. Penney CEO Jill Soltau said at a conference call last week that they have been providing contingency plans for the production of commodities for many years and have been looking for new production bases worldwide in the first round of trade wars.

Large enterprises like J.C. Penney usually have full-time staff dedicated to finding the lowest cost and highest quality factory in the world.

Smaller businesses can find new suppliers in trade shows and industry exchanges.

Kernan points out that most brands choose to build new factories in other Asian countries, but even fast-growing manufacturing centers like Bangladesh and Vietnam are unable to cope with large-scale orders from China.

The biggest advantage of manufacturing in the United States is that, regardless of tariffs, we can produce goods quickly and reduce the backlog of goods.

Some companies are trying to move the production line back to the United States. Although the cost is higher, the goods can be delivered to the customers faster.

In view of the rising cost of manufacturing in China, and the brands are exploring ways to deliver products quickly, McKinsey analyzed the advantages and disadvantages of us made in a report last year.

Search for new country of origin for commodities

If some of the steps in the production process are pferred to other factories, the brands that rely on China's manufacture may avoid taxation.

The United States Customs defines the country of origin as the "country or key component producing country that has completed the most important part of assembly".

In some cases, this means that those countries that have completed the final assembly are commodity origin countries.

If the yarn used for a sweater comes from Peru, its weaving part is completed in China, but it is knitted in Vietnam, then Vietnam may be regarded as the country of origin of this sweater.

"If you own an underwear company and finish weaving, tailoring and sewing in China, we can help you pfer the work of tailoring and sewing to another country, so you can argue that the product origin is not China."

Richard Mojica, a Miller & Chevalier law firm, said that he had been providing legal advice to retailers and clothing companies on tariff issues. "These so-called ending work can be completed in Vietnam and India."

Mojica also suggests that enterprises should first submit a well conceived supply chain to the US Customs and decide whether or not to pay customs duties.

Different brands may get different responses, and the verdict is usually released within 30 days.

Hoarding goods before the tariff policy takes effect

The major brands can also ask suppliers to rush to deliver goods to the United States by June 24th, thereby avoiding taxes in the short term.

According to Adam Winters, chief executive of Merchant Financial Group, fashion brands will normally receive a month's work before the shelves are available, thereby reducing inventories.

However, in view of the current situation, some businesses are considering completing all the orders this year, hoarding goods to tide over the difficulties ahead, and businesses need large sums of money.

They can seek help from companies that offer short-term credit services such as commercial financial groups to raise funds to cover costs.

In the next few weeks, the air, sea and air cargo routes will be very busy.

Winters said, "some customers have recently called us, hoping that we can provide financial support to help them deliver all autumn products to the United States by June 24th.

In the next few weeks, the air, sea and air cargo routes will be very busy.

He added that some companies relied solely on this way to tide over the difficulties and hoped that President Trump would eventually reduce tariffs during the second election period.

Sharing tariff costs

Another short-term solution is that brand businesses agree with suppliers and retailers to share tariff costs.

For example, if a brand usually buys a sweater from a Chinese supplier at a cost of 100 US dollars, but now it has to pay more than 25 dollars in tariffs, they can ask the manufacturer to cut down the price of 5 dollars, and persuade the retailer to add another 5 dollars to bear the cost of taxes.

Explore the "first sale" plan

In the "first sale" plan, clothing manufacturers sell products to intermediaries (cost price, which is the first sale), and intermediaries sell the same products to American brands of imported products (the cost plus the handling charge, which is the second sale).

The brand pays the tariff at the cost of the first sale, so that the cost of handling can be excluded from the tariff.

Mojica says many clothing and footwear brands have already used "first sale" to reduce costs.

But he also warned that this is a high-risk strategy.

"The first sale" has been subject to strict scrutiny by customs, plus the tariff changes, the US Customs will definitely tighten up such activities.

The prerequisite for obtaining the first sale qualification is that the paction between producers and intermediaries must be genuine sales.

The brand should seek help from lawyers and consulting firms to meet customs requirements.