The only constant is change. To this end, it’s important for companies to keep up-to-date on geopolitical issues and legislation that could impact their supply chains. The Americas Trade and Investment Act is a new bill introduced by Senators Bill Cassidy and Michael Bennet that aims to reduce trade dependency with China, strengthen relations with Western Hemisphere countries, encourage a circular apparel industry, and lessen exposure to forced labor. If passed, the Americas Act would be the latest change in the U.S.’s complicated and fluid trade relationship with China. It also presents opportunities for more ethical sourcing and a new circular domestic textiles industry. Sounds promising, but will it deliver?
To answer this question, let's wind back the clock to consider where the U.S. is at today. During the past three decades, outsourced production, containerization, and favorable trade policies ushered in an era of globalization. Low-cost goods brought tremendous benefits to people and nations alike, to the point where consumers are now a main driver of the economy. Case in point, in the U.S., roughly two-thirds of the gross domestic product (GDP) comes from consumer spending. As brands outsourced production to make low-cost goods, China emerged as the world's manufacturing powerhouse, especially in the apparel, high-tech, and semiconductor industries.
In the apparel and footwear sector, the sheer scale of Chinese manufacturing and supply chain infrastructure led to a step-change in efficiency that was irresistible for many Western brands. Reliably available low-cost items fundamentally changed consumer expectations, reset the norm, and paved the way for fast fashion.
However, this trajectory has been shadowed by mounting national security concerns, geopolitical tensions, and a drive toward greater sustainability and more ethical sourcing. These forces have given rise to initiatives like the Americas Act and are signaling a shift towards more regional and sustainable production.
Promoting reshoring and nearshoring
At its core, the Americas Act is designed to reduce U.S. dependence on foreign adversaries by promoting reshoring/nearshoring away from China and strengthening trade ties with Western Hemisphere countries. The act seeks to bring jobs, wealth, and regional stability to the Americas region, increasing the standard of living in Latin American countries and reducing the appeal of migration to the U.S. This inherent immigration aspect makes it politically appealing, even in a divided Congress. The act also intends to be cost-neutral and self-funded by closing the de minimus loophole, which currently lets cheap goods from China evade tariffs. As such, this act provides multiple wins politically.
The primary mechanism of the Americas Act is to expand eligibility for the United States–Mexico–Canada Agreement (USMCA) to include countries in Central and South America. It also includes $70 billion of loans, grants, tax incentives, and investments to promote reshoring/nearshoring away from China.
Is this likely to change trade dynamics with China?
When it comes to reducing dependence on China, will the Americas Act shift the needle? The simple answer is yes, but not on its own. While this type of policy is an important step in the right direction, it won't be enough.
The act will definitely promote trade between the U.S. and Western Hemisphere countries by spurring more investment in regional production and strengthening supply chains. However, even if the program eventually doubles or triples trade between the United States and Central and Southern American countries, it would have a limited impact on reducing the U.S.’s dependence on China anytime soon.
Regarding U.S. textile imports, only three of the top 15 export countries are in the Western Hemisphere, and these three countries only represent 7% of imports, compared to 74% from Asian countries. Moreover, two of those three countries, Mexico and Canada, are already part of the USMCA. While they would benefit from funding to grow operations, they would not be new country additions to the trade agreement. Honduras is the only new country in the top 15 that qualifies for entry via the Americas Act, with textile and apparel imports of roughly 4% of China.
Even if every country in the Western Hemisphere signed on and doubled their exports of goods to the U.S., it would barely dent the trade from China.
Days of easy globalization are over
While investment in reshoring/nearshoring will help make the U.S. less dependent on Chinese manufacturing, unwinding decades of established infrastructure and gearing up production, supply chains, and skilled workforces in new countries will take decades. Just as it took years of policy to promote coupling between China and the United States, decoupling those relationships will also take a long time. Furthermore, the decoupling process is complicated by these times of volatility and rising geopolitical tension.
Transitioning from today’s complex interdependent supply chains will require considerable policy adjustments beyond the Americas Act, including new proposals to strengthen trade with top non-Chinese Asian exporting countries, which comprise most of the U.S.’s imports.
One thing is for sure: This act is yet another telltale sign that the days of "easy" globalization are over.
Incentives for circularity and ethical trade
In addition to the political aspects, the act directs $14 billion—one-fifth of the proposed funding—toward promoting circularity in domestic textiles, apparel, and footwear industries. Circularity, also known as reuse and recycling, is an important means to reduce the high levels of landfill waste, emissions, and freshwater consumption associated with the industry.
Additionally, to foster ethical supply chains, the act includes $750 million in funding over five years to strengthen U.S. Customs and Border Protection's power to crack down on goods made by forced labor in Chinese factories through the Uyghur Forced Labor Prevention Act.
New opportunity for a circular apparel economy
Circular policies that support reuse and recycling offer undeniable economic benefits, regardless of trade politics. It reduces raw materials and extraction/processing costs per unit, letting you make more with less. In an era of supply constraints and limited materials, making smarter decisions about using and reusing resources is important to ensure we can provide housing, clothing, and food for more people at lower costs.
Regarding apparel and footwear, reusing textile fibers also reduces emissions, water use, deforestation, and biodiversity loss. It's a win-win all around: lowering costs and promoting growth, helping brands realize net-zero goals, and offering consumers more sustainable options.
Policy and incentives to promote circularity in textiles, like those in the act, will be instrumental in establishing reuse and recycling programs. However, results won't happen overnight. It will take time for the industry to ramp up at scale and even more time to change consumer behavior. For example, when did you last bring an old shirt or sock with a hole to a fiber recycling bin? Many consumers likely don't know where to find a fiber bin, let alone are actively using one.
Net-positive change
Despite these complexities, the Americas Act offers tangible benefits to the U.S., Western Hemisphere nations, and the apparel industry at large. It's part of a larger shift underway toward a more regional type of globalization than in prior decades, with more sustainable and circular practices and a more ethical supply chain free of forced labor—one in which apparel plays center stage.
Long story short, if passed, the Americas Act is an important step in the right direction. The one caveat is not to count on it as a silver bullet but rather one of several deliberate actions to create a meaningful and positive change.
