How Economic Inequality Trumps Trade

Wednesday, April 26, 2017

If you follow politics, it’s easy to become cynical. The media (in particular the American variety) typically covers public discourse as it would a football game: There are winners and losers, underdogs and favorites, establishment certainties and outcast longshots. Lost amongst all of the sports analogies and hyperbole is the fact that serious problems churn American society. And no issue has gained more attention than economic inequality.

Economic inequality is a serious problem with dire political implications. It’s more than simply a football game with winners and losers. For many, free trade is the cause of economic inequality. Moreover, many politicians fear public reaction to a further expansion of global commerce. Such worries have left trade initiatives like the TPP in the dust. Moreover, existing trade agreements such as NAFTA are under siege. Renegotiation seems to be a real possibility, although it is not certain when such a renegotiation would occur.

Added to the uncertainty over the NAFTA and the apparent waning of enthusiasm over global trade remains a rapidly changing U.S. economy. In our industry, many apparel stores in the United States continue to struggle in a rapidly changing economy. Young consumers exert greater influence every shopping season while online sales continued to expand at the expense of many brick and mortar stores. Furthermore, tech gadgets continued to attract dollars that would have otherwise purchased clothing.

Of course, many of these trends are not new and have gradually gained prominence as changing global economics continue to grind away at the traditional retail business. But a challenge for many sourcing executives is how to determine the real impact of such change. Is it only measured in aggregate retail sales or is there more to the story? Some segments of the apparel supply chain appear to have recovered from the doldrums of the global recession in 2008 while others continue to struggle. All the while, the retail apparel business continued to function as two distinct entities: one, high-end, the other, low-end. Indeed, this dichotomy not only characterizes today’s retail apparel market, but it more directly reflects the contemporary social environment.

For sure there have always been high- and low-ends of the market. But in today’s business, this split has taken on new dimensions. In the past, retail always assumed the consumer would often choose between expensive and cheap based on factors such as design, functionality, fit and finish. Price always played a role, but increasingly for many consumers, the price of a garment is more important than ever and outweighs simple fashion. And many retailers have only been too happy to meet such demand. At the high-end, though, other forces are at work: environmentalism, local production, and “slow” fashion have gained primacy. For many consumers, it’s not enough to just purchase a garment at a good price; they want to know the story behind that garment. Where and how was it made?

Many of my friends from Asia and Europe have voiced concern over the election of Donald Trump as the American president. Trump may be shrill, a boor, and a serial opportunist, but he does act as a populist lightning rod for the disaffected in America. He reflects the frustrations of a significant portion of the American populace: namely, working-class people who have been left behind by the pervasive march of globalization. Indeed, there was a time when this segment of American society could readily find employment in manufacturing and other low skilled jobs. Today it’s different. Those jobs don’t exist anymore. The collapse of the American textile industry is a poignant example.

Trump, in short, is a manifestation, a populist born of frustration and failed aspirations. An oxymoron, he’s a billionaire, working-class mouthpiece. The rise of Trump goes hand in hand with the decline of America’s working class and with it the ability of a large segment of the American consumer market to continue to purchase apparel and textile products as it had in the past. In this sense, Trump is a bellwether of trends in the United States.

Economic inequality has been a cost of globalization. Despite all of the good done because of globalization, it has forced significant changes in the traditional consuming societies, while also painting an unfinished portrait of developing countries. Another cost has been the rise of Trump and what he represents of failed expectations. It’s far from clear that the buying power of the upper economic strata can more than offset the struggles of everyone else. Hence, retail will need to adapt and in so doing change its requirements.



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