Textiles and Tariffs

Just as fashion designers and retailers have been struggling to adapt to changing consumer demands, they now must face a new battle: a trade war.

Back in May, the White House announced its plan to impose tariffs on $50 billion of Chinese goods in the hope of pressuring China to stop alleged unfair trade practices and intellectual property infringement. After the U.S. Trade Representative, Robert E. Lighthizer, released the final list of goods subject to the new tariffs, China responded with tariffs of its own on U.S. goods. Upping the ante in July, the U.S. next threatened to impose a second round of levies, resulting in 25% aggregate tariffs on an additional $200 billion of Chinese goods. Once again, China hit back with more tariffs of its own.

Many economists have warned that the effect of a prolonged trade war between China and the U.S. will ultimately increase prices for American consumers and will damage U.S. businesses. Those working in the fashion industry are likely to agree. The May round of tariffs placed on Chinese imports, which covered a range of industrial, agricultural, and medical goods, left the fashion industry relatively unscathed. But the next round of tariffs, initially rumored to include textiles, handbags and suitcases, is likely to hit designers, retailers and, ultimately, the American shopper.

Following the U.S. threats made in July, Mr. Lighthizer agreed to hold a hearing to discuss market opposition to the proposed tariffs. In attendance at the hearing, held in August, were more than 350 stakeholders, including the Council of Fashion Designers of America, the American Apparel & Footwear Association and the Accessories Council.

To say that the American apparel industry relies on Chinese manufacturing may be an understatement. Kathryn Hopkins of Women’s Wear Daily (WWD) has noted that “China is vitally important to the industry with government data showing the U.S. imported $27 billion worth of apparel from the country last year, accounting for 34 percent of all apparel imports. That is more apparel than was imported from any other country, dwarfing second-place Vietnam at $12 billion.”

Concerned about impending tariffs, Edward Rosenfeld, the CEO of Steve Madden, told WWD: “We and others will certainly try to pass on a good chunk of this to the consumer in the form of higher retail prices.” Steve Madden is also looking to move its handbag manufacturing from China to Cambodia in response to the higher duties.

National Retail Federation President and CEO, Matthew Shay, told WWD: “This round of tariffs amount[s] to doubling down on the recklessness of imposing trade policy that will hurt U.S. families and workers more than they will hurt China – it’s two-and-a-half times the amount already imposed.”

Smaller businesses are particularly vulnerable to the proposed levies. Anne Harper, the CEO of OMG Accessories (annual sales: approximately $2 million), expressed her concern for the impending tariffs, stating: “I can’t just absorb that percentage…. The bread and butter of my business is selling to retailers, so that’s a big challenge. Q4 is where we ship all of our holiday goods. If the 10 percent comes into effect right before the goods ship from China, we’re subject to that extra 10 percent so it represents hundreds of thousands of dollars for my business. It’s basically a loss.”

On August 26, 2018, China filed a formal dispute with the World Trade Organization (WTO), alleging that the U.S. tariffs violate WTO rules.

On September 17, 2018, the White House made good on its warnings in July, confirming that tariffs of 10% would be placed on $200 billion worth of Chinese imports – ranging from silk to handbags. China promptly responded again, stating it would impose its own tariffs, of 5% to 10%, on $60 billion worth of U.S. goods. Meanwhile, the U.S. has threatened to increase tariffs on Chinese goods to 25% total on January 1, 2019, unless the two countries can conclude a trade deal.

Is there an endgame in sight? At this point, there are more questions than answers. The White House is slated to share more information following its September 17th announcement. One can only wait for the next episode of Textiles and Tariffs.

Credit:  Candace Arrington


What’s In A Letter?

Recently, the New Balance footwear company won a landmark $1.5 million trademark decision in the Suzhou Intermediate People’s Court, near Shanghai, China. Daniel McKinnon, the New Balance senior counsel for intellectual property, told the New York Times: “If the China marketplace can be thought of as a schoolyard, New Balance wants to make it abundantly clear we are the wrong kid to pick on.”

The schoolyard brawl all started when New Balance alleged that three Chinese brands infringed upon its well-known New Balance “N” trademark. The three Chinese shoemakers, New Boom, New Barlun, and New Bunren, saw fit not only to use similar brand names, but also to trade off of New Balance’s international acclaim by mimicking its slanted “N” design on their shoes. A Suzhou Court cited the defendants’ free-riding, consumer confusion, and market harm as the basis for its ruling in favor of New Balance.

What makes this case important is not only that New Balance was prepared to fight for its rights in China—often a challenging thing to do—but also that it was willing to do so over a single-letter trademark.

A trademark is a source indicator that can convey a range of messages about your brand such as quality, price, taste and reputation—the sometimes obvious and sometimes mysterious factors that, in total, are the goodwill of the brand.
Brand owners often reflect upon the value and protectability of words, names, logotypes, slogans and even colors as trademarks. The victory by New Balance in a famously tough territory tells us that a lot can ride on who is found to own and have the rights to exploit a single letter.

Minimalism is as much a factor in trademark recognition as anywhere else in the broad field of visual expression. Mercedes Benz has made a simple three-pointed star one of the most recognizable marks on earth. In the USA, Louboutin owns the color red for the soles of shoes, and Federal Express owns the truncated version of its mark popularized by the public: FedEx. Take it down even further, and you get marks with one or two letters: PayPal is recognized by two cerulean stylized “P’s” and Facebook by a solitary but consequential byzantine blue lower-case “f”. Uber upgraded its former “U” mark to a modernized “U” enclosed by emerald green.

In fashion, designers have been using single-letter marks for decades. Hermès uses its elegant “H”; and of course, New Balance is using its slanted “N”. A few logos have doubled letters: Gucci has made the twin “G” into a brand; as with the seemingly reflective Tory Burch “T”, the mirrored Fendi “F”, and the interlocking “Cs” of Chanel.

Single-letter marks can be significant in fashion because a single letter can serve not only as a logo, but also as a design that can be emblazoned on clothing, handbags, shoes, etc. Meanwhile, the boom in online retail—where a mark may be only barely visible—has been the basis for the further simplification of marks. The large British online retailer Asos recently abbreviated its trademark to the letter “a,” the better to identify the brand on its mobile app.

 

Credit: Candace R. Arrington

Candace Arrington provides research support as a law clerk to our corporate and business law, intellectual property law and entertainment law practices.