Fashion’s Pro-Sustainability Bills Could Trigger Chinese Trade Retaliation

New bills favoring fashion sustainability could pour gasoline on the raging global trade war with China. As brands struggle to exit the country’s toxic but efficient supply chain, the United States and France have stepped in with bills that set up fair competition and new manufacturing centers in the West and cut off parts of China’s trading power. If these bills come into force, the fashion industry will finally have its moment of reckoning with China – and the sector should brace itself for Beijing’s response.

In the U.S., the Americas Trade and Investment Act is a comprehensive bill that establishes a regional trade hub in the U.S. and Latin America, reducing dependence on Chinese manufacturing as a matter of “national security interest.” The Act, which was introduced to the Senate in March, is, itself, an explicit form of retaliation, “a trade-based response to the trading behavior of the People’s Republic of China.” The bill levels a series of frontal attacks on China’s supply chain, calling it a “slave-based subsidized trade” filled with “environmental degradation” and “theft of intellectual property rights.” 

Moving away from the Chinese system and bringing manufacturing back to the Americas will require $70 billion in grants and loans. First in line for that cash is fashion. The bill prioritizes $14 billion in incentives for textiles and apparel firms that produce or use circular manufacturing. 

Meanwhile, in France, Bill 2129 attacks fast fashion, a predominantly Chinese industry. By modifying the Environmental Code, the bill endeavors to require fast fashion entities to either comply by overhauling their business model or face penalties as high as 50 percent of revenue per item. Steep fines would run the industry out of France or result in a windfall of revenue-based penalties.

Caught in the middle are European fast fashion titans like Zara and H&M. Transparency reports from both companies show that at least 50 percent of their manufacturing takes place in China. But the French “anti-fast fashion” bill ignores their decades-long impact, instead scapegoating China’s Shein. The bill bitterly recalls the ‘90s as a time when France began ceding its textile manufacturing to offshoring. The loss is linked to China’s ascent in the market for cheap textiles.

The French Assembly has also passed amendments to extend Bill 2129 to marketplaces, flagging Temu, for example, a China-founded marketplace with jaw-dropping growth. Depending on how “marketplace” is defined, the amendment could include Amazon, where 50 percent of top sellers and 75 percent of new sellers are Chinese. 

Taken together, both bills threaten at least 15 percent of China’s textile supply chain revenue, the country’s second-largest export. Economic policy experts weigh in on what retaliation might look like for the fashion sector …

Fast-fashion Price Wars & the Global Supply Chain

During Bill 2129’s reading, Rep. Anne-Cecile Violland argued that two-thirds of clothing waste stems from disinterest, not wear-and-tear, an “emotional obsolescence” attributed to marketing’s overconsumption goals. Consequently, the bill bans fast fashion marketing.

Bill 2129 builds on new EU regulations that “level the playing field for non-Chinese retailers,” says Reva Goujon, a director at U.S.-based policy think tank Rhodium Group. To sustain business in big consumer markets, Chinese fast fashion will serve to slash prices even further, “in spurts as price wars play out.” She speculates that Shein and Temu’s margins can absorb further discounting and regulatory costs.

Hong Kong-based law professor, Julien Chaisse, tells us that China could play hardball and prevent textile raw materials from leaving its ports, creating a worldwide shortage. With its tremendous supply power, the country could realistically do this – single-handedly. Chaisse reasons that by holding the global supply chain hostage, China could pressure lawmakers in the U.S. and France to back down.  For example, the Americas Act spotlights Uruguay and Costa Rica as new textile hubs for American businesses. But both countries have grown their dependency on China’s scraps and raw materials; export restrictions would hinder production, forcing the US to re-evaluate anti-Chinese trade policies. It is impossible to boycott a virtual monopoly.

But Chaisse, a prolific author for the World Trade Organization (“WTO”), says that export controls in China rarely stick: “China’s previous actions in restricting exports of raw materials have frequently been challenged and ruled against in the WTO dispute settlement system.” He also questions whether China would use export restrictions during its current economic crisis. Restrictions would stall their own industries, leading to financial losses and drastic job cuts that undermine prosperity and inflame “domestic unrest.”

Possible tit-for-tat tariffs

Goujon emphasizes that retaliation does not need to be a “one-for-one response” when it comes to textiles and fashion – not every tit has a predictable tat. And she is right. For instance, when the EU opened a biodiesel anti-dumping investigation into China, China did the same, but for cognac. LVMH, Hennessy cognac’s parent company, is enduring but might suffer if the trade war spills into textiles. Goujon ventures that “China’s retaliation in the consumer goods/retail space is likely to be more selective,” and luxury clothing and accessories from France, Italy, the U.S., and the UK could all be in the crosshairs. LVMH alone accounts for 4 percent of the French economy and has 20 percent of its business in China – a Chinese luxury tariff would bruise France’s economy. 

There might be a silver lining. Until COVID closed China’s borders, Chinese nationals bought the bulk of their luxury overseas. Post-COVID, overseas buying has not fully recovered. But a tariff would increase China’s luxury import prices, making prices in Western markets more attractive, accelerating overseas shopping and economic stimulation. 

Edward Leamer, a UCLA professor and former Harvard economist who worked closely with the International Monetary Fund, reminds us of the codependency between the world’s largest economies: China relies on exporting to the U.S., and the U.S. relies on selling Treasury bonds to China. Theoretically, China could offload Treasury bonds, “which could cause a catastrophe for the US dollar,” he says. But China would self-destruct in the process, taking out its own economy in addition to all others – the doomsday dollar – and Goujon and Chaisse agree that China wants low-blowback retaliatory targets.

Still, the risk appetite for retaliation makes it difficult to believe new bills are wholly about moral imperatives. Especially when Western economies are just as culpable for valuing profits over ethics, creating the Chinese system in the first place. The novelty is that these bills have given advocates the blueprint to reshape sustainability arguments as trade weapons, a surge in the movement’s geopolitical power and economic credibility. 

Rudrakshi Nair is a former strategy leader from the beauty vertical, having worked on a $500M AGR brand. She now works in finance and writes about global economic and sustainability policy on the side. She holds an MBA from UCLA.