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What the Trans-Pacific Partnership Means for Fashion

U.S. fashion and textile manufacturers are worried they won't be able to compete if the U.S. enters the tariff-lowering partnership.
Photo: Pablo Cuadra/Stringer

Photo: Pablo Cuadra/Stringer

Last week, Congress and the Obama administration spent a good amount of time negotiating a way to fast track a bill that would give the president authority to enter into the Trans-Pacific Partnership, a trade agreement with 11 other countries that has been in the works for a decade.

At its core, the Trans-Pacific Partnership is meant to help promote trade between participating countries — including Vietnam, Japan, Malaysia and Australia — by reducing tariffs and other costs associated with importing and exporting goods from one country to another. But the agreement says a lot more than that, and is a point of contention between President Obama and many of his fellow democrats.

Massachusetts Senator Elizabeth Warren has spoken out against it, suggesting that one provision in particular — the Investor-State Dispute Settlement (ISDS), which allows foreign companies to challenge government laws — would “undermine U.S. sovereignty.” In short, the ISDS would allow a company to sue the U.S. government if it wasn't happy with its manufacturing or marketing practices. Or, Nike could sue the Vietnamese government if it doesn't comply with labor laws. For instance, Phillip Morris Asia is suing the Australian government through a different trade pact because it says that Australian law — which requires cigarettes to be packed plainly so that they'll seem less desirable — is cutting into the tobacco giant's profit. While the ISDS could be used for good or bad, Warren thinks it gives big corporations too much power.

If you’d like to better understand the broad implications of the Trans-Pacific Partnership, Vox did a good explainer that feels less slanted than pretty much anything else I’ve read on the topic. If you’d like to better understand how the Trans-Pacific Partnership (TPP) might affect the fashion industry in particular, read on.

President Obama at Nike headquarters on May 8. Photo:Natalie Behring/Stringer

President Obama at Nike headquarters on May 8. Photo:Natalie Behring/Stringer

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It’s no coincidence that, on May 8, Obama chose to make his big speech about the importance of the TPP at Nike, a multibillion-dollar company that could save millions each year under the agreement. Nike manufactures more shoes in Vietnam than anywhere else, and pays a tariff of 30 percent on every pair imported from the country.

Those in favor of the TPP say that companies will be able to pass those savings on to the consumer, thus encouraging more spending, which will create a more robust economy, and so on. For companies that manufacture in the U.S., the TPP is meant to make American-made products look more attractive to other countries. For instance, U.S.-made products often cost much more in Japan than they do here because of import taxes. (It's the same reason Topshop is more expensive in the U.S., and J.Crew is more expensive in the UK.) That could change. Nike, for one, says that the agreement could actually create 10,000 more U.S.-based manufacturing and engineering jobs, probably connected to customized products that are produced locally for a quicker turnaround time.

Others, however, worry that making it even more affordable to import goods from abroad will further deter companies from manufacturing here in the U.S., where labor costs are inevitably higher. New Balance, which assembles 4 million pairs of  of its sneakers in Lawrence, Mass. — the only athletic footwear company to produce those sorts of shoes in the States on that scale — believes that tariffs even the playing field in terms of pricing. If Nike brings its prices down, say, 15 percent — or even 5 percent or 10 percent — thanks to the reduction in tariffs, New Balance might not be able to compete in the U.S. The hope is that a company like New Balance will see an increase in orders from abroad after the taxes are lifted, but that’s far from guaranteed.

Another big concern for the fashion industry is textiles. Right now, the U.S. operates under a “yarn-forward” rule. “That means everything from the yarn to the weaving of the textile to the cutting and sewing has to be done in a free trade agreement member country to avoid tariff,” explains Susan Scafidi, founder and academic director of Fordham’s Fashion Law Institute. If they change that to a "single transformation" rule, fabric woven and cut in China, but sewn in Vietnam, would be able to go tariff-free. While the U.S. textile industry is small, with exports mostly going to Mexico and Canada, textile manufacturers here are still generally concerned. (A lot of premium denim is woven here, as are high-tech textiles like Kevlar and Spandex.) Again, the government says that the removal of tariffs will encourage more exports of textiles from the U.S., not the other way around.

As of May 15, the bill was set to be fast tracked, and it seems that Congress will approve U.S. entrance into the TPP. If you're having trouble picking a side, you're not alone. The most frustrating part about this agreement is that very few people have actually read the latest version, which is only available to examine in the basement of the Capitol in a soundproof and secured room. “What’s particularly different around these conversations is that we don’t really know what [the TPP] looks like,” says Scafidi. Seems that will change in the coming weeks. 

Update: An earlier version of this post said that New Balance manufactured all of its sneakers in the U.S. Only a limited number are produced here.