Co-dependency isn’t so healthy in a human relationship, but in international trade, it’s worked well for the U.S. and Mexico for textiles and some apparel.
The North American Free Trade Agreement paved the way for the partnership as the industry took advantage of each nation’s strengths. According to the American Apparel & Footwear Association, the U.S. has great textile mills for making fabrics, yarns and other inputs, while Mexico is better at cutting and sewing. This means American textiles are sent to Mexico to be finished and then sent back to the U.S., duty-free, to be sold to consumers.
But now industry experts fear that relationship is being threatened by some of President Donald Trump’s proposals.
During the first presidential debate, Trump called NAFTA “the single worst trade deal ever approved in this country,” and in his first week in office, he’s been exploring renegotiating or ending it.
That led to a bumpy beginning as Mexico President Enrique Pena Nietocanceled his planned in-person trip to talk to Trump. Later, the two spoke on the phone for about an hour.
US textile jobs at risk
While Trump has said NAFTA has cost the United States jobs, more than 64,000 textile workers, largely in North and South Carolina and Georgia, are dependent on the current textile and apparel trade with Mexico.
Nate Herman, senior vice president of supply chain at the apparel association, warned that changing NAFTA would cost tens of thousands of American textile manufacturing jobs.
“Not only would a change in policy put their jobs in jeopardy, but it could also be disastrous for the supply chain, potentially impacting jobs in other sectors, as well as result in higher costs for American consumers,” Herman said.
Rules of origin on apparel and textile are complicated since it’s not uncommon for textiles to originate in one place and be cut in another and sewn in another, said David French, senior vice president for government relations at the National Retail Federation, the retail industry’s trade group.
French said the most important factor to consider when looking at U.S. trade with Mexico in retail is the cost and skill of labor. Apparel construction is fairly labor intensive and requires a certain skillset, the cost of which, is lower in Mexico and Central America, though not as low as elsewhere.
One apparel category dependent on Mexico
Within the apparel sector, the category most dependent on Mexico is men’s and boys’ jeans. Mexico is the largest supplier of male jeans to the U.S., responsible for 40 percent of those sold in the U.S., Herman said.
So a change in NAFTA that makes trade with Mexico less favorable, or damages the co-dependent relationship with the textile workers in the U.S., could be detrimental for the price of men’s and boys’ jeans at your favorite retailer.
Levi Strauss & Co. sources its products from 25 countries, including Mexico. The denim brand declined to say how much it sources from Mexico, but SEC filings detail no single country accounted for more than 15 percent of its sourcing in 2016. A company spokesperson said Levi Strauss is “watching the policy developments around NAFTA and others closely, but it’s too early to comment on the speculation about potential future policies.”
VF Corp., which owns jean brands include Wrangler, Lee and Rock & Republic, did not return CNBC’s request for comment.
Retail-related trade with Mexico
Mexico isn’t the United States’ biggest trade partner when it comes to retail. China is far bigger.
Seventeen retail-related categories make up about 15 percent of the U.S. trade deficit with Mexico, or nearly $9 billion worth, according to data compiled by the Commerce Department through November.
In 1993, the year before NAFTA went into effect, the U.S. trade deficit with Mexico in those retail-related categories was just $318 million of a $1.6 billion total trade surplus.
Comparing retail trade between the U.S. and Mexico to retail trade between the U.S. and China, the numbers are much more significant. As of November, those 17 retail categories now account for $81 billion of a $319 billion trade deficit with China.
Looking at a narrower view, with just the apparel and textile industry and excluding footwear, the U.S. has a trade surplus of $321 million with Mexico. Currently, Mexico is the United States’ sixth-largest supplier of footwear by volume, or 0.8 percent of all footwear imports, and the eighth-largest supplier of apparel, or 3.3 percent of all apparel imports.