U.S. textile companies used to be divided over the North American Free Trade Agreement (NAFTA), which put Mexico into a trading bloc with the United States and Canada 23 years ago.
Now they like it, for the most part, even as the new president, Donald Trump, threatens to cancel it.
As it turned out, a provision of NAFTA called the “yarn forward” rule led to a symbiotic relationship between textile mills that manufacture yarn and fabric in the United States and cut-and-sew operations in Mexico that turn fabric into consumer products such as clothes and ship it to U.S. retailers.
Mexico has a competitive advantage in hosting cut-and-sew operations because those operations are labor-intensive and labor is cheaper in Mexico, compared to the United States and Canada.
But under the “yarn forward” rule, Mexican cut-and-sew operations must use fabric with yarn manufactured in the NAFTA region in order to gain duty-free access to the U.S. market. And that incentivizes them to buy fabric from highly-efficient U.S. mills, many of them in the Carolinas, instead of from Asian mills.
As a result, Mexico is the No. 1 export market for U.S.-made yarn and fabric, buying nearly $4.4 billion worth of it in 2016, according to federal trade data.
“NAFTA has been good for our industry,” says Rob Chapman, chief executive of Inman Mills, which employs more than 700 people making yarn and fabric at three plants in Inman and Enoree.
The same dynamics apply to the Central American Free Trade Agreement (CAFTA) between the United States, five Central American countries, and the Dominican Republic.
The mutually beneficial trade relationship is why the National Council of Textile Organizations, a trade association with many South Carolina members, doesn’t want Trump to walk away from NAFTA as he threatened to do while campaigning for the White House.
Trump has revised his position more recently, saying he wants to renegotiate a better deal from Mexico and Canada and will walk away only if he doesn’t get one.
“We like his current position much better than the original position,” said Augustine “Auggie” Tantillo, president of NCTO, which lobbies for U.S. textile interests in Washington.
Its membership reads like a “who’s who” of the Carolinas textile industry.
South Carolina members include Greenville-based Sage Automotive Interiors, Mauldin-based Mount Vernon Mills, Spartanburg-based Milliken & Co., Easley-based Alice Manufacturing, Inman-based Inman Mills, Gaffney-based Hamrick Mills, and Spartanburg-based William Barnet & Son.
Tantillo said NAFTA’s “yarn forward” rule is having another beneficial effect on top of creating demand for U.S. textile makers.
He said it’s one reason that foreign textile companies have been building plants in the United States. Other reasons are less-expensive natural gas and availability of raw materials such as cotton, polyester, and nylon.
Among the foreign companies that have built plants in the United States is China’s Keer Group, which three years ago announced plans to spend $218 million and hire more than 500 people for a new cotton yarn plant in the Lancaster County community of Indian Land, its first facility outside of China.
While NCTO doesn’t want Trump to walk away from NAFTA, it does support his call to renegotiate the free-trade agreement to make it more advantageous for U.S. companies and their workers, Tantillo said.
One way to do that, he said, is to eliminate a loophole called a “tariff preference level” that allows a certain amount of goods made of fabric from outside of the NAFTA region to enter the United States duty-free.
“That was a political concession,” Tantillo said. “There was no economic basis for it. And it’s the exact type of thing Donald Trump is talking about when he says, ‘Why did we do that?’ U.S. textile workers in the Carolinas don’t benefit from that.”
Tantillo said NCTO is glad Trump ended U.S. involvement in another proposed free-trade agreement, the Trans-Pacific Partnership, which he said presented a very different situation than NAFTA.
TPP would have put the United States into a trading bloc with 11 other Pacific Rim nations.
NCTO announced its support of TPP last year, but Tantillo said that was only because the Obama administration was adamant about adopting it.
“Under the Obama administration, there was an air of inevitability about doing TPP,” Tantillo said. “Consequently we had to work within that system to make sure TPP did not cost 100,000 U.S. jobs and did not set back the rebound that we had struggled so hard to achieve. We felt like we got the needed language to insulate us from that damaging blow.”
Now, Tantillo said, NCTO is glad to have a new president who is challenging conventional wisdom on trade policy.
Trump’s insistence that U.S. manufacturers and U.S. manufacturing workers benefit from U.S. trade policy is “an incredibly important and welcome fundamental change in attitude,” he said.
“In a general sense, the new president has ushered in an environment of policy debate and change that I haven’t seen in my 35 years in Washington. So for the first time, we aren’t just on automatic pilot and doing more of the same. We have a White House and an administration that has said, ‘Hold on. Let’s find out what’s actually working.’”