Challenged By War, Ignored By Government

War is horrible and painful to watch. Everyone asks what they can do to help, or how they can bring some comfort to those affected. In addition to human suffering and physical damage on the ground, there are also significant business repercussions that emerge from the Ukraine crisis. Retail stores, consumers, and manufacturing partners are genuinely affected. Stores in Russia are closing, their payment methods have severed, Mastercard and Visa have suspended, shipments are stagnated, freight rates are rising, vessel insurance is jumping, certain foods are becoming scarce, and the Suez Canal is raising rates from sea to sea. Fuel costs are skyrocketing with USA gasoline hitting $4.25 a gallon. In the apparel world, the cost of fertilizer for cotton is going up and polyester is derived from petroleum.

The cold war has surely heated up and many retailers recall a similar time (way back) in 1958 when product sourcing was different and retail distribution far less global. Europe was comfortable back in 1958. They were protected by The North American Treaty Organization which had been created 10 years earlier because Russia maintained veto power in the United Nations.

Also in 1958, there was an eye-opening book by Eugene Burdick and William Lederer. It was called “The Ugly American” and it rippled shockwaves through Washington’s diplomatic elite. The story was about fictional Americans in Southeast Asia placed overseas to foster good will. Unfortunately, the fictional Americans were insensitive to foreign culture, and failed to promote American ideals and combat the spread of Russian style communism. Fallout from the book unleashed a torrent of corrective action as American efforts were revealed to be truly disparaging and quite negative. It has been said that the Peace Corps was a by-product of the book, and some theorize that America’s modern-day trade agenda was developed to improve the image of America through global trade and business development. Trade programs like the Generalized System of Preferences (GSP) and the African Growth & Opportunity Act (AGOA) helped developing nations. Factories were built in diverse locations including Haiti, South Korea, Taiwan, and the Philippines to provide entry level jobs, stability, and feed families across the globe. American influence gained stature through these programs and was quite popular in foreign lands.

Honorable deeds were appreciated then, and they continue to be appreciated to this day. In the past few weeks, Europeans opened their homes and hearts to millions of refugees who were forced to flee from Ukraine. It was heartwarming to see the great humanitarian and Spanish-American Chef Jose Andres with his World Central Kitchen on the front lines in Korczowa, Poland – feeding refugees from the crisis. His selfless actions showed human nature at its best – providing food and comforting to people in need. Other American groups have also provided significant help – with all types of humanitarian assistance. Perhaps, in thinking about goodwill, it’s important to recognize that retailers and their manufacturing partners have been working at these same humanitarian goals for many years – in places far and near. Many have done this through USA trade programs.

It is entirely true that special USA trade initiatives were designed to be helpful, but some politicians have occasionally weaponized these same programs to punish countries around the globe. Removal of any program tends to affect the local population and it doesn’t stop wars or end conflicts.

Former President Trump was keen on weaponizing trade. He threw curve balls at the trade agenda using tariff restrictions and GSP country expulsions. Many thought his tariffs would be short lived, but they have been continued under the Biden Administration. Even Congress doesn’t seem (or want) to understand that non-renewals of trade programs and continuing tariffs does add significant expense to every-day transactions. They tend to fuel the country’s inflation – while often depriving food and comfort to individuals in far-away lands. Ethiopia, for example, was penalized with the loss of AGOA, India lost their GSP privileges, and Cambodia is on a hot seat with GSP as well.

Retail is tasked with leaving China, but remains frustrated when the federal government inadvertently blocks their attempt to relocate. Absent alternatives, they revert to their more reliable pattern of developing finished product in China. Tariffs as corrective action has already been proven to be a false premise – unless, of course, one considers inflation and bankruptcies as an accomplishment. For sure, retail is recalibrating in 2022 for all these challenges, but it would also be helpful if the federal government was more supportive.

For the last three years, China has maintained their market share for USA apparel imports largely because choices to move product have been limited.

YEAR CHINA Share of the USA Market

2019 39.93%

2020 36.60%

2021 37.76%

There are several specific areas to demonstrate where the government has not been helpful on trade:

*According to the Office of the US Trade Representative “the Generalized System of Preferences (GSP) provides opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.”

**GSP expired in January of 2021 (14 months ago).

*According to the Office of the US Trade Representative the African Growth and Opportunity Act (AGOA) provides “new market opportunities” that help “bolster economic growth, promote economic and political reform, and improve economic relations in the region.”

**Recently, the US Government dropped Ethiopia, Mali, and Guinea from AGOA – an action which concerned investors about the future for Africa because AGOA is set to renew in 2025.

*According to the Nation Association of Manufacturers the purpose of the Miscellaneous Tariff Bills (MTB’s) is to “temporarily eliminate tariffs on imported materials that are either not made in the United States or are not available in sufficient quantities. It boosts American competitiveness and ensures that U.S. made products are competitive with products manufactured outside the country.”

**Congress has yet to renew the program. MTB’s expired in January of 2021 (14 months ago).

When the Biden Administration took over in January of 2021, retail was expecting that a more normal trade environment would return. Unfortunately, the Biden Administration and the 117th Congress have yet to help change the dynamic. In this time of war and conflict – humanitarianism, generosity, and the good-will of countries will be remembered for years to come. The “Ugly Americans” have long been gone – the worry of the moment is “Complacent Americans.”

As Shakespeare said: “excusing of a fault doth make the fault worse by the excuse.”