The Effect of Tariffs on your Shopping Addiction

Hello chicas!! Welcome to Professor Jules's Ted Talk.

New tariffs imposed on key materials and goods in Mexico, Canada, and China may cause your shopping addiction to come to a slow halt. Unless you got a bag girl, then you probably good. But for my future law school a**, I don't have the moola to spend the way it is. I know this is a different topic than we normally talk about. No fun dialogue on shape, artistry, or trends you can catch walking outside. However, I think this can be a cool way for us all to learn the impacts of decisions on business!! Yay right!! Okay let us get into it. Let's bring you to ECO001. One of the first things you learn is the idea that the cost of tariffs is often passed onto or transferred to the consumer. The brands can absorb the cost but it is normally passed onto the consumer as it can significantly raise the cost of importing the good affecting the cost of goods sold. Businesses often operate on a tight margin (how much money a company keeps after paying for costs), so as you can imagine, it is not that frequent that they absorb the costs. Let us continue. Mexico, Canada, and China are major sourcing hubs for the fashion industry supplying textiles, apparel, and accessories. These materials are essential to fashion. Think of cotton, synthetic fabrics, dyes, and fasteners, which are price elastic (sensitive to price hikes or price change). March 4th, the new administration plans to impose 25% tariffs on Mexico and Canada, and it also imposed an additional 10% tariff on China in the most recent trade fights. 25% on aluminum and steel imports. These tariffs have a large impact on the fashion industry. Let's think of it in a more tangible way. A fashion designer put it this way in an interview. She could get a whole roll of 50 yards for around $18 if she bought it from China, but in New York, she gets the same exact color, and it is $80. Can you see the connection of how rather than absorbing costs, the cost of importing was just passed onto consumers? Here's another example. If the U.S. imposes a 25% tariff on imported leather handbags from Italy, a $200 handbag now costs the retailer $250 just to import. Originally it might be sold for $400 but now its price is raised to $450 or more. See what I'm saying? Additionally, 30% of all fashion brands produce in China currently.... so. yeah.... The goal is to create more manufacturing in the US for domestic goods. However, the fashion industry is heavily reliant on outsourced materials globally. Only 3% of clothes are made in America, yet America is the LARGEST importer of apparel in the world., yeah we might me screwed there, with most material coming from China and Vietnam. So now you may ask, what are the potential repercussions. For sectors like the luxury goods sector, there may not be as MUCH of a decrease in spending as it is notoriously inelastic. Even so, I have read articles about a slowdown. For the average consumer (me), there may be price increases as mentioned especially in price sensitive segments like fast fashion (bye bye shein ayayyaya). Brands may need to move manufacturing closer to home or move their supply chains to avoid tariff-heavy regions. Short term disruptions but long term gain. Brands may have to look for tariff-free trade agreements (agreements that let countries buy and sell goods without extra taxes) to shift sourcing locations. On the brighter side, domestic brands may gain a competitive advantage and international sourcing brands may struggle competing with localized production. Domestic brands may see increased demand, boost production, and job creation. However, low cost labor abroad is highly depended upon by the globalized industry so job creation may not directly offset that need. Overall, it will be extremely interesting to see what brands do next. If they choose to not pass on this tariff to consumers, they may absorb the cost reducing profit margins but staying competitive, source from other countries, or use cost-cutting strategies to use cheaper material and reduce quality (blehhhhh, I mean you American Eagle). I honestly am not an economist (I took intermediate micro eco thats it and it was hard af), but I can definitely conclude that there will be some ramifications from the tariff war in the industry. Could we see less seasons because of a decrease in materials and opportunity for garment creation? Because of a decrease in the manufacturing workforce available or affordable to brands? Who knows, but girl watch your spending from now on or keep a spreadsheet and keep an eye on your favorite tank from Garage's prices. I also hoped you learned something today as just because you love fashion doesn't mean you can't be educated as well!!!