Mexico mulls to slap mirror textile tariffs to counter Trump

U.S. President Trump likely to imposes a 20 percent or other duty on Mexican imports if so, Mexico mulls to slap “mirror” tariffs against U.S. fabric and apparel imports which would severely harm cross-border manufacturers and retailers alike, said some textile executives.

Sixto Mercado, vice president of top trade lobby Canaive’s branch in Jalisco State, home to Guadajara said that it would be a good idea if the government did something to compensate against this [the Trump tariff]. As they have many apparel exporters here who would be affected.

However, Mexico is set to begin negotiating the North American Free Trade Agreement by May to meet Trump’s calls for a rewrite. The economy minister Ildefonso Guajardo said that in mid-January if Trump imposes a tariff or a border adjustment tax, Mexico would pursue “mirror actions.”

The statement is an indication of the growing tensions between the two neighboring countries, longtime allies, as Trump pursues his plan to build a wall along the border and claims that Mexico will pay for it. The 20 percent tariff or other duty proposal forms part of the plan to fund the wall.

The U.S. ships roughly $6.5 billion worth of apparel and textiles to Mexico — $4 billion is fabric and $1.2 billion apparel parts, according to Canaive. Conversely, Mexico sends back $4.5 billion worth of clothing and textiles — $3.5 billion of apparel and $1 billion of textiles.

A possible trade war has strained diplomatic relations and unleashed a nationalist uproar in Mexico with populist groups calling for consumers to boycott American companies including Wal-Mart, Starbucks and McDonalds. Social media is abuzz with tweets-for-tats urging citizens buy Mexican goods with hashtags such as #AdiosWalmart, allegedly hitting sales at the U.S. discounter’s largest international division. A Wal-Mart spokesman said that the firm is “monitoring the situation” but had no further comment.

If the proposed 20 percent tariff is levied (among other options) to pay for Trump’s border wall and Mexico hits back, they could grow below zero, Mercado said, adding that exports could plunge 10 percent, despite a record-low peso.

In 2016, the textiles and apparel sector grew 5 percent as strong local apparel sales offset a 4.3 percent drop in U.S. sales.

As Mexico flirts with a possible recession, Mixto said that local sales could this year grow 7 percent compared to 10 percent in 2016. Amid strong anti-American sentiment, local-brand turnover could eclipse U.S. brands for the first time in recent memory.

Everyone is being urged to buy Mexican products. This will hit American brand sales.

Many consumers could shun Wal-Mart in lieu of Mexican archrival Coppel or choose to buy at department-store chain Liverpool’s lower-end unit Fabricas de Francia. Mexican fashion designers, long in the shadows, could win consumer hearts.

This is bad news for the likes of the Axo or El Palacio de Hierro network, which have grown by bringing aspirational U.S. brands such as ck Calvin Klein, Tommy Hilfiger and Abercrombie & Fitch south of the border. An executive at Axo said that the 20-brand franchisor has not seen “any sales declines” from the patriotic upsurge and is operating “business-as-usual.”

It’s clear Axo and rival Sordo Madaleno, a top architecture firm making a leap into foreign fashion licensing (it just opened Mexico’s first AllSaints outlet) will suffer as consumers tighten their belts and seek “Made in Mexico.”

In Europe, Mexican fashion jean labels Oggi and Siete Leguas could make successful forays because they have high-quality products using innovative fabrics and new washing technologies, according to Mercado.

These companies sell premium jeans to Levi’s, Wrangler and True Religion so they could also start selling in Europe. That will require even more innovation, training and other investment the industry has been slow to pursue.

They need to make more fashion and design and to diversify their exports because they are too dependent on the U.S., said Alfonso Zepeda, the man behind Expo Denim, a denim trade fair set to open in Guadjalajara in late May, adding that European expansion should be a priority.
Here in Jalisco they make great coats, cotton knits, denim pants and suits. They could sell these to smaller, H&M-like stores.

Europe represents a huge opportunity with their low peso and there are niches they could exploit

Mexican apparel producers to meet the challenges are seeking new markets in Central America and Europe with which Mexico has a largely vague free-trade agreement. Costa Rica, Panama and Central America could be good markets to compete on price and quality.