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Mexico tariffs would be bad for denim-loving Americans

Quartz logo Quartz 6/4/2019 Marc Bain

If Donald Trump goes ahead with his threat to impose a 5% tariff on all goods coming from Mexico, Americans are likely to feel the effects on a wide range of products. There are the well-known targets, such as avocados, alcohol, and cars. And then there are plenty of other goods that Americans may not realize come to the US from Mexico.

For instance, the tariff would punch a lot of American guys right in the blue jeans.

The US, which imports nearly all its clothing, gets more men’s blue jeans from Mexico than it does any other country. Last year, the US imported about $691 million worth of men’s blue jeans from Mexico, according to US government data. Its imports from China totaled about $227 million by comparison. A new tariff would raise costs for all US clothing brands making those jeans in Mexico and then importing them, leaving those companies to decide whether to absorb the expense or, more likely, pass it onto consumers by increasing prices.

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“Additional levies on US companies for imports would result in higher inflation hurting consumer spend,” Poonam Goyal, a Bloomberg Intelligence senior retail analyst, told Bloomberg (paywall). “That could hurt sales for key denim makers like Levi, American Eagle, Wrangler, and Lee if they manufacture denim [in Mexico].”

When Levi’s, which happens to get most of its sales from men’s bottoms, filed for its IPO in February, it pointed to changes in US trade policies as a potential risk to its business, noting in particular the moves Trump made to raise tariffs on Chinese imports and the possibility of changes in policy toward Mexico. It also referenced Trump’s efforts to replace NAFTA with a new policy, called the United States-Mexico-Canada Agreement (USMCA), though an independent government agency found the USMCA would likely have almost no net economic impact. Levi’s stated in its disclosure:

"Approximately 15% to 20% of the products that we sell in the United States are manufactured in China and Mexico. If the Trump Administration follows through on its proposed China tariffs or replaces NAFTA with USMCA, or if additional tariffs or trade restrictions are implemented by the United States or other countries in connection with a global trade war, the cost of our products manufactured in China, Mexico or other countries and imported into the United States or other countries could increase, which in turn could adversely affect the demand for these products and have an adverse effect on our business and results of operations."

Trump’s new tariff threat toward Mexico has flustered the American Apparel & Footwear Association (AAFA), a trade group representing US clothing brands that previously pushed back against the China tariffs. “This is unfathomable, especially as we are working to gain approval of the USMCA in the United States and as the USMCA is about to be introduced in the Mexican legislature,” Rick Helfenbein, CEO of the AAFA, said in a statement.

It pointed out that Mexico is the eighth largest supplier of apparel to the US, the seventh largest supplier of footwear, and the number-one supplier of men’s jeans.

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