Current trends and historical comparisons don’t paint a pretty picture for the fashion industry
The Short Version
The retail sector at large, and the fashion industry specifically, has been having a rough time staying afloat the past two years. While a wave of populism sweeps the US and parts of Europe, fashion labels are beginning to worry that populist politics could gut fashion worse than Germany did during WWII. The comparison is frightening and gives designers more reason to insert politics into fashion.
The Long Cut
Fashion appears to be on the verge of crisis. I mentioned more than once during this past season’s coverage on Pattern that there were several names missing from the schedule, but didn’t take the time to explain why. Let’s do a bit of that now.
BCBG Max Azria has been hurting for a while and confirmed it would be seeking bankruptcy protection March 1. There were announcements that all the stores would be closing as the company shifts its attention to online sales. None of that was terribly surprising, given sales trends for the past few years. However, what did catch people off guard was when Lubov Azria, the long-time creative director, CEO, and wife of founder Max Azria, announced she is stepping down from the company completely. She is being replaced in both the corporate and creative positions by Bernd Kroeber, who has been with the brand since 2007. This announcement is generally viewed as a desperate attempt to revitalize a brand whose look and reputation seems stuck in the 90s.
The last SIBLING runway we covered was the autumn/winter 16 season last year. The amazingly popular show had erred in not requiring tickets for their presentation and, as a result, a number of editors and buyers were left out in the cold. When September came, we weren’t able to view the show due to scheduling conflicts, but in looking at the pictures we could tell something wasn’t quite right. The death of founding member Joe Bates due to cancer in 2015 was taking its toll. This season, SIBLING wasn’t on the official London schedule at all (they showed off-schedule). Then, this past Friday (March 10), the label announced they were entering liquidation. Shutting down. Game over. No immediate reason was given.
Then, catching everyone by surprise, THAKOON, the New York-based label backed by Hong Kong investor Vivian Chou, announced that the label is being put “on hold.” This comes less than a month after the label showed its current season collection in New York. While no date has been given for full closure, current inventory is being sold quickly. The reason being given is that the brand’s business model does not line up with the current retail market. Whether we will ever see another THAKOON collection coming down the runway seems doubtful at this point.
Those are just the latest in a line of recent closures that are punching larger and larger holes in the fashion industry. At the same time, department stores such as Macy’s and Saks are struggling to stay afloat as well. Should the department stores go down, the blow to the fashion industry overall would be tremendous.
Understandably, designers are very nervous. Toss international politics into the fray, though, and designers are downright scared. We saw the application of some of that fear this past season as many designers chose some form of protest, some more obvious than others, during their runway presentations. While outsiders wonder if the rhetoric has any substance, those in the fashion industry see the move toward populism as troubling. Already, the US and UK have populist leaders and designers in both countries are bracing themselves for what might be coming next.
One of the biggest reasons for such concern is that nationalism leads to closed markets and lack of access to the international talent pool on which fashion relies. Already, some 97 percent of all fashion is imported in the US, including the president’s own brand, and those of his daughter. What might be a more important number, however, is realizing that even when clothing is manufactured in the US, much of that work is being done by immigrants, roughly 20 percent of whom are undocumented. Any disruption in either trade or immigration is going to adversely affect the fashion industry and both, at this juncture, seem imminent.
Opening Ceremony’s creative directors Carol Lim and Humberto Leon, both of whom are second-generation immigrants, have never shied away from using their clothing line as means of making a political statement, but since the elections last November have found it all the more critical to be steadfastly aware of the current immigration status not only for themselves but many of the people with whom they work. Most recently, they cooperated with Justin Peck, New York City Ballet’s resident choreographer, in the production of a new piece, The Times Are Racing. The ballet looks at how the lives of first-generation immigrants affect the lives of their children as they assimilate into the world, a timely topic under most any circumstances. However, between its debut, on a Thursday, and its second performance, on the following Saturday, something changed. The president signed a travel ban leaving thousands stranded at John F. Kennedy and suddenly the protest of the ballet was being mirrored in real life. Dancers, leaping across the stage in t-shirts that read “Act,” “Defy,” “Protest,” “Shout,” and “Change,” were no longer part of what had happened but were now part of what is happening.
The Council of Fashion Designers in America (CFDA), the organization that represents US-based designers, has already been looking at the problems caused by the shift in policies and what might be done to offset the consequences. There don’t seem to be many positive options. CFDA president Diane von Furstenberg, herself a Belgian-born immigrant, said, “The fashion industry has always been a reflection of what America is all about… inclusion and diversity. I am personally horrified to see what is going on.”
New York–based designer Linda Abdalla, who was born in Ireland and raised in Ohio, told Vice magazine, “It even affects the tailors and the seamstresses, and some of the best ones come from countries that are on the banned list. … Having designers and artists coming from those countries, having this ban on people coming to visit, or study, or work for these brands is a big deal. I just started meeting more African designers who are coming to the states, but this is just another block.”
Even in France, National Front leader Marine Le Pen is leading in polls ahead of April-May elections and has said she will push for the country to leave the European Union and close France’s borders, which would be crippling to the Parisian fashion industry, one of the most influential in the world. France’s current minister of culture, Audrey Azoulay, told the Associated Press, “populist powers” are “absolutely incompatible with the idea of fashion and freedom.”
One of the reasons fashion designers and CEOs are so alarmed is because they or their predecessors have seen this before. Many fashion houses, especially those in Europe, are well over 100 years old, some of them, such as Pringle of Scotland, more than 200 years old. Embedded in those fashion catalogs are the evidence of how international politics and upheaval affect the fashion industry.
Consider the fact that we no longer look to Germany as a fashion power. Yet, prior to the rise of Adolf Hitler in that country, Berlin was just as much a fashion capital as Paris or Milan. What happened? At its peak, Germany was home to approximately 2,400 Jewish-owned clothing labels and garment manufacturers. Between 1933 and 1938, all of those companies disappeared because of one person’s severe anti-immigration stance. Imports were forbidden. Exports completely dried up. The fashion industry in Germany died.
Some of the effects of the populist politics from that era still persist. The “Made it Italy” label sewn into garments from Armani to Gucci to Fendi started under Mussolini in an effort to convince Italian women to stop buying their dresses from Paris. While the label is seen today as more of a marketing tool, the nationalistic purpose has never gone away and Italy is still more closed to immigrant designers and foreign textiles than are other countries.
Fashion is a globally dependent industry, reliant on the international travel of both people and material in order to survive. Designers such as Calvin Klein’s Raf Simons regularly travel back and forth between New York and Europe and around the world not only for inspiration for their collections but to discover new fabrics and textile technologies. When politicians begin cutting off access to the global market, either through import/export taxes or through travel bans of any kind, they drive a knife deep into the heart of the fashion industry.
Most reliant on the free flow of textiles are the “fast fashion” retailers such as H&M and Forever 21 whose low prices are dependent upon garments manufactured at the lowest possible prices, usually in places such as Turkey and Bangladesh. Were imports from those countries to see a new tax of 25 percent or more, as has been suggested by the US administration, fashion retailers across the board, from Macy’s to Wal-Mart would feel the negative effect. Stores would have little choice but to pass the increased costs on to the consumers, resulting in an unprecedented amount of inflation. Eliminate those imports entirely and H&M and its competitors would have little choice but to close. Completely.
The rhetoric of populist politics always sounds good on the surface. “Make America Great.” “America first.” “Buy American.” Yet, history has proven that such nationalism and the fashion industry don’t mix. Fashion has to be open. Fashion, as an industry, must move as freely as a summer dress. There can be no borders. There can be no domestic restrictions. Try to put fashion in a box, even if it is flag-draped, and not only will an industry die, but the economies dependent upon that industry will be crippled.
Fortunately, designers are not the kind of people likely to just slip quietly away. As we saw this past season, they intend to speak up, to use their voices not just on the runway but on store shelves and even on the bodies of their customers to express opposition.
Larger groups are getting in on the action as well because bad laws that affect one sector affect them all. To that end, the National Retail Federation (NRF) released this ad last month in opposition to what’s being called a “border adjustment tax.”
The NRF has a strong lobbying presence in the US Congress and is working against any new legislation that would be of any detriment to the already struggling retail sector.
Now, let’s bring the matter home.
Consider what you are wearing right now. Assuming the clothes were not a gift, how much did you pay for them? $10? $100? Maybe $350 for the whole outfit, including the shoes. Americans are notorious bargain shoppers and hate paying full price for anything (which is a problem unto itself). So, what happens if a 25% tax is pushed on to the customer. The actual price increase is going to be closer to 30% to cover additional administration in filing the tax. So, that $10 item is now $13. Doesn’t seem like much. The $100 dress is now $130, which still doesn’t sound like a horrible increase unless you’re on a budget, in which case crossing that $100 line may not be possible. That $350 outfit though is closer to $450, and if you’re someone who likes designer labels in your clothes that 30 percent adds up even faster.
Oh wait, we’re not done. You can’t wear just one outfit every day (though I know some who would try). Consider how much you spend on clothes for your family each year. The kids’ school uniforms. The shoes (almost none of which are made in the US). The underwear (almost all of which is imported). Can you really afford a 30=50 percent increase in your clothing budget on top of all the other prices that are increasing along with it?
If you’re part of the one percent of the US population that makes over $521,411 a year, you might not be too concerned. The rest of us, however, have every reason to worry.
Populist politics, from nationalistic protectionism to anti-immigration restrictions and overly protective import tariffs are not only bad for the fashion industry, they are equally bad for your life, your children’s lives, and your future.
You might want to consider contacting your members of Congress now.
Swapping taxes for tariffs costs YOU a lot more money
Tell Me Like I’m Five
The inflationary ride of the past four years has been wild and while it’s better than it was, for a lot of people it seems that everything is more expensive than it was. While the reality seems to be different, when we look at the speed with which our bank accounts dry up, we want to blame inflation for the lack of funds available. If we’re to be honest here, though, inflation at the moment isn’t as bad as it was four years ago. Take a look. Here are the latest findings from the Bureau of Labor Statistics (BLS) published June 12:
Look at those numbers and compare them to what you see on your grocery receipt and in your checkbook. Eating out is really costing us! That’s where the biggest cost increase remains. Everything else is below or close to the two-percent inflation rate the Federal Reserve expects. That is the number that primarily decides whether the Fed will raise interest rates. Furthermore, BLS also revealed last week that grocery prices are finally going down, a whopping 0.2 percent. That may not sound like much, but depending on what you buy, you could start getting more for your dollar at the store. Personally, I’m still waiting for the meats, poultry, fish, and eggs category to come wayyyy down, but a lot of that depends on how you vote.
Yes, the prices we see in the stores are a direct reflection of the policies set by the President and Congress, both of which are subject to your vote. Since this is an election year, we all have to become economists to a certain extent in order to understand exactly what presidential nominees are talking about and whether or not they’re lying.
Hint: they don’t have a fucking clue what they’re talking about. Someone hands them a piece of paper with a bunch of numbers on it and they assume that those numbers are correct. Most of the time, however, regardless of which politician is behind the podium, the numbers are, at best, incomplete and frequently fictional.
This is currently important because last Thursday, while speaking with Republican members of Congress, the Orange Felon said that, should he become president again, he would raise tariffs by 10% and reduce taxes. He later said that he might eliminate the income tax and replace it with tariffs. A lot of ears perked up when this statement was made public. Every responsible economist in the country responded with, “There’s no way that works!” In theory, that should have been the end of the discussion.
Of course, the official GOP line is to support their nominee. SO, RNC spokesperson Anna Kelly said “The notion that tariffs are a tax on US consumers is a lie pushed by outsourcers and the Chinese Communist Party.”
If that’s the case, then every economist in the United States is affiliated with the Chinese Communist Party? We’re gonna call bullshit on that and on Anna Kelly who, like every other political affiliate, doesn’t have a fucking clue what she’s talking about.
In response, European Central Bank President Christine Lagarde said in recent days that the world risks a new “geopolitical divide” and urged governments to respect international trade rules, which are designed to keep tariffs low.
If you and I are to make intelligent decisions when we vote, (which, admittedly, isn’t easy), then we need to understand how this all works. Let’s start with tariffs.
What Are Tariffs
To answer this question responsibly, let’s look at how tariffs are defined by the Council on Foreign Relations:
A tariff is a tax imposed on foreign-made goods, paid by the importing business to its home country’s government. The most common kind of tariffs are ad valorem, which are levied as a fixed percentage of the value of the imports. There are also “specific tariffs,” which are charged as a fixed amount on each imported good (for example, $2 per shirt), and “tariff-rate quotas,” which are tariffs that kick in or rise significantly after a certain amount of imports is reached (e.g., fifty thousand tons of sugar).
Tariffs can serve several goals. Like all taxes, they provide a modest source of government revenue. Several countries have also used tariffs to help fledgling industries at home, hoping to shelter those local firms from foreign competitors. Some tariffs are also meant to address unfair practices that other countries have used to make their exports artificially cheap.
Almost every country imposes some tariffs. In general, wealthy countries maintain low tariffs compared to developing countries. There are several reasons why: developing countries might have more fragile industries that they wish to protect, or they might have fewer sources of government revenue. The United States, for instance, maintained high tariffs for decades, until income taxes supplanted tariffs as the most important source of revenue. After World War II, tariffs continued to decline as the United States emphasized trade expansion as a central plank of its global strategy.
The Constitution grants Congress the power “to regulate commerce with foreign nations, and among the several states,” which it used for more than a century to impose tariffs. Perhaps most infamous, Congress raised close to nine hundred separate tariffs with the 1930 Smoot-Hawley Tariff Act, which many economists say worsened the Great Depression. But over the past ninety years, Congress has delegated more and more trade authority to the executive branch, in part a response to its mistakes in Smoot-Hawley.
Several pieces of legislation underline this trend. The Reciprocal Trade Agreements Act of 1934 gave President Franklin D. Roosevelt the power to negotiate tariff-cutting trade deals with other countries. This was followed by the Trade Expansion Act of 1962, which granted the president authority to negotiate tariff reductions of up to 80 percent. The Trade Act of 1974 [PDF] allowed the executive branch to strike trade deals—with negotiating objectives set by Congress—that were then subject to an unamendable up-or-down vote, known as fast-tracking. Both Democratic and Republican presidents have used this authority to lower tariffs and enter into a range of trade deals, including the agreement establishing the World Trade Organization (WTO).
Just to add a wee bit of perspective, remember that Stamp Tax that prompted the Boston Tea Party? That was a tariff. Our founding fathers tended to care about them a great deal more than you and I do. The sad fact is that very few American citizens know what a tariff is nor the degree to which it affects almost everything they buy. Even items that are labeled as “made in America” may have components from another country that were subject to tariffs. We pay higher prices because of tariffs and never realize it because the tariff is built into the final cost.
So yes, tariffs are definitely a tax that you and I pay, and for that reason, we should pay attention to when and where tariffs are levied by anyone in our government.
What about income taxes?
Income taxes have technically been around since the Civil War. President Abraham Lincoln instituted the first income tax in 1861 to help pay for that bloody war. Since then, there have been a number of changes. Here’s the timeline of significant tax events:
Every time income taxes come up, there are always some zealots who pop up saying that income taxes are illegal. Those silly people are wrong. The 16th Amendment provides all the authorization the government needs to impose and raise taxes. Read it for yourself:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
That’s one broad, sweeping authorization! Whether we like it or not, it’s law. Today, income tax is responsible for over $3 trillion in federal revenue and factors significantly into whether the federal government is able to balance the budget and pay its debts. This creates a problem when we start talking about changing the income tax rates. The 2024 federal budget requires revenue of $6.5 trillion. Some of the difference is made up of corporate and other taxes, and $30 billion in new tariff revenue. However, there are still not enough taxes to balance the budget. We are looking at a $348 billion deficit just for this year, according to the Bipartisan Policy Center.
Trying To Make The Numbers Work
Now that we have some understanding of tariffs and income tax, let’s try putting together the numbers according to the Orange Felon’s proposal and see if it works. First, he wants to add 10% in tariffs across the board. The Office of Management and Budget reports that in the last “Fiscal Year” — October 2023 to September 2024 — CBP officers collected over $80 billion in tariff money, nearly as much as their Treasury colleagues got from all the taxes on inheritances, gasoline, liquor, and tobacco put together. Add the $30 billion in new tariff revenue and we have $110 billion. Next, we add the proposed ten percent. That gives us $121 billion.
Okay, children, which number is larger: $3 trillion or $121 billion? Can $121 billion replace the $3 trillion without increasing the federal debt substantially? No, it cannot. The numbers don’t add up. We have a problem, and it doesn’t involve Chinese communists even a little bit.
Granted, we can’t exactly expect a felon convicted on fraud charges to be especially good at math, or logic for that matter. Again, he’s most likely basing his random vocalizations on numbers he’s heard during briefings he mostly slept through. Still, we, as voters, need to understand the dangers of proposals such as the ones he’s spouting because ridiculous ideas like this have a way of becoming law.
First, we have to realize that levied tariffs don’t exist in a vacuum. When a tariff is levied against a country, that country almost always, especially in today’s competitive environment, responds with a similar tariff on US export goods. According to Forbes:
For example, if a broad 25% tariff on all imported goods is placed, the cost of every imported good will go up by at least 25%. Retailers and manufacturers will pass that added expense on to consumers, and prices will necessarily go up on any imported goods or goods that contain imported materials. This will cause consumers to choose domestically-produced lower cost goods, to the extent they are available.
As demand shifts to American made goods, in the absence of a matching level of increased production in every sector of the economy all at once, there will be more demand for domestic goods than supply. Prices will skyrocket just as they did during past supply chain crunches.
In essence, tariffs act as a regressive tax. They were broadly eliminated in favor of an income tax in the late 19th century for just that reason. Their regressive nature means that lower and middle-income consumers would bear the brunt of the cost of financing the public fisc—effectively experiencing an immediate and substantial increase in their cost of living.
Forbes estimates that it would take something close to an 85% increase in tariffs to replace revenue generated by the income tax. Even that number is probably much too low. A more realistic number is well over 100% and at that point, things start getting very scary for the US economy.
Let’s consider the calculations of an expert: Paul Krugman, Nobel laureate in Economics. Taking to the X platform, he laid the math out for everyone to see.
Imports are about 14 percent of US GDP. Federal income tax revenue (not including payroll taxes) is about 8%. So you might think replacing it would require a tariff rate of 8/14 or around 57 percent. But tariffs would raise the cost of imports to consumers, so we’d import less, which would mean you need a higher tariff rate. But this reduces imports further, meaning a still higher tariff, and so on how high you have to go in the end depends on how much prices affect import demand — the elasticity. I assume an elasticity of 1, which is what you sometimes get for the medium run, although the long run is probably higher (which makes it worse).
With an elasticity of 1, the estimate looks like this: t*14/(1+t) = 8 Work this through, and the tariff rate is 8/6 = 1.33, that is, 133 percent. With a higher elasticity, it would go higher, maybe to infinity. So how is it that in the 19th century the federal government largely paid its way with tariffs? Because back then the government was much, much smaller. Believing that we can go back to those days is just ignorant.
133%! Consider that, according to the American Center for Progress, the ten percent increase in tariffs would cost Americans, on average, $1,500 per year, then, assuming straight across-the-board equivalencies, a 133% percent increase would cost Americans several thousands of dollars more, possibly well in excess of $10,000 per household!
I don’t think that’s quite the tax cut the Orange Felon thinks it is. Of course, what would we expect from someone who cheats on every financial deal he’s ever encountered? Oh, and the financial break would look something like $1.5 million for the 1% of Americans currently hoarding way too much money. That’s just a blip on the radar for Elon Musk, perhaps, but that always means more coming out of the pockets of people like you and me.
So, know that if you go ahead and vote for the Orange Felon, whatever your misguided reasons may be, the end result is going to cost you a lot more money than you’re paying now. Thousands more.
In my opinion, he’s not worth it. No one is.
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