The intricate dance of textile and apparel trade between the United States, Canada, and Mexico is a microcosm of global economic forces, shaped by decades of trade agreements and increasingly challenged by geopolitical uncertainties. From the era of NAFTA to the present USMCA, the North American landscape has witnessed both remarkable integration and escalating tensions.

Historical Foundations: From NAFTA to USMCA

NAFTA, launched in 1994, fundamentally altered the region's textile and apparel sector. The ‘yarn forward’ rule, a cornerstone of NAFTA, mandated that all stages of production, from yarn to finished garment, occur within North America to qualify for tariff-free access. This fostered a tightly knit regional supply chain, but also led to the decline of some domestic manufacturing sectors in the US, as labor-intensive assembly shifted to Mexico.

The 2020 USMCA, while preserving many NAFTA provisions, introduced refinements. The de minimis threshold increase from 7 per cent to 10 per cent allowed for slightly more flexibility in sourcing non-regional materials. Moreover, USMCA expanded the list of North American origin requirements, notably including sewing thread, elastic fabrics, and coated fabrics, aiming to deepen regional production.

Data-Driven Insights: Trade flows and trends

Analyzing trade data reveals the dynamic nature of this sector.

Table 1: US Textile and Apparel Trade with Mexico and Canada (%Billion)

Source: US Office of Textiles and Apparel (OTEXA)

The data demonstrates a consistently strong two-way trade, with Mexico being a major partner. The steady growth of imports from Mexico shows the success of the coproduction model. The 2023 data shows a continued upward trend. According to statista, "In 2023, the value of US textile and apparel exports to Mexico amounted to about 6.9 billion US dollars." This shows how large of a trading partner Mexico is to the US In 2023, US textile and apparel exports reached $29.7 billion, with 53 per cent directed to Mexico and Canada ($12.3 billion). Mexico holds its place as a crucial exporter, with $9 billion in textile and apparel sent to the US Canada's specialization in high-value textiles, such as technical fabrics, is evident, with 64 per cent of its textile exports destined for the U.S.

USMCA's Double-Edged Sword: Benefits and burdens

USMCA's impact is complex:

Supply Chain resilience:

The agreement aimed to secure regional supply chains, vital in times of global disruption. However, reliance on a single region can also expose vulnerabilities.

Market Access and investment:

Duty-free access has spurred investment, particularly in Mexico's apparel sector. However, the threat of tariffs casts a long shadow.

The De Minimis dilemma:

The $800 de minimis threshold is a battleground. U.S. manufacturers argue it favors Asian e-commerce giants, leading to unfair competition and potential illicit trade. Advocates for de minimis point to the reduced costs for consumers and small businesses.

NCTO President Kim Glas has been very vocal about this loophole, and the danger it poses to the US textile market.

Anticipated scenario and future outlook

If the proposed 25 per cent tariffs are imposed, the anticipated scenario would see disruptions across the entire North American textile and apparel supply chain. Higher costs for raw materials and finished goods would likely force companies to seek cheaper alternatives outside the USMCA region, undermining the very goals of the trade agreement. Additionally, the closure of the de minimis loophole could help level the playing field for North American manufacturers but would also require robust enforcement to prevent transhipment and undervaluation practices.

In response to these challenges, Mexico has initiated strategies to reduce its trade deficit with China and attract more investment, aiming to strengthen its position within the USMCA framework and reduce economic dependence on non-member countries.

While these agreements have fostered growth and integration, evolving economic policies and global challenges continue to redefine the landscape. Stakeholders must remain adaptable, emphasizing innovation, ethical practices, and strategic partnerships to navigate the complexities of international trade in this sector.