Bringing Back American Manufacturing — Part 3 — Is Yarn-Forward, Backwards?
A critical look at the raw materials feeding your apparel appetite
Your favorite winter jacket is an assemblage of various materials. That perfect blue color that you love is comprised of a polyester face fabric, decorated with a fluorinated polymer durable water repellent (DWR) coating. Directly behind that is a waterproof-breathable membrane, likely a laminated or coated polyurethane (PU) based layer to make sure you stay dry as you exert yourself. To maintain warmth, a synthetic insulation is tucked between the outer waterproof layer and another inner polyester fabric. The seams are sealed with a PU seam tape to make sure they do not leak in a heavy downpour. Additionally, there are zippers, fasteners, and logos made of various polymers and metals.
We discussed in the previous article the labor-intensive cut and sew process to assemble garments from these various materials and bring the clothes to market. Here, we will explore where these materials come from and identify the feasibility of porting this portion of the textile supply chain (Figure 1) to the North American region.
Much of the textile industry that was sent to China is commodity fabrics, and domestic manufacturing has remained competitive in the same way Japan and Taiwan have remained competitive in this space: advancing materials technology. Japan and especially Taiwan have become leaders in the technical textiles space, developing cutting edge materials that have been integrated into the latest race for technical outerwear. These high value materials are also being produced in the US.
While the large mills left decades ago, the I-85 corridor between Raleigh, NC and Greenville, SC remains vibrant, though fragmented. The companies have left, but the talent stayed and continued developing. Places like Precision Fabrics Group have found ways to apply their textile technology and knowhow to other areas. Milliken began with textile mills long ago but learned to apply their technology in other realms as polymer science penetrated other aspects of our lives beyond synthetic fibers while still pushing the boundaries of textile engineering.
Outside of the South Eastern US, Noble Biomaterials has high end technologies being applied to antimicrobial and electrically conductive applications. Polartec has spent a significant amount of time and money pushing the boundaries of technical outerwear. Technical fabrics are easily produced via mechanized systems. People are present, but most of the value-added labor is executed by machines. Therefore, high labor cost areas are still able to maintain leadership within the technical textile categories.
The entirety of materials classified as “textile” imports constitutes approximately $120 billion annually. If we break out the synthetic fiber and fabric segment, it makes up only 3% of the total imported value in 2019.
Because these are intermediate materials required for garment assembly, this data implies that the US is only importing finished garments. There are two good reasons that garments are not generally made in the US with imported yarns or fabrics. First, as previously discussed, is capability. The labor-intensive portion of garment manufacture is in garment assembly. We generally don’t have the manufacturing base because of the high cost of labor in the US to perform the assembly steps to import intermediate products in large quantities.
The second reason is economic incentives in the form of import tariffs. Free trade rules associated with the US-Mexico-Canada agreement (USMCA) and previously with the North American Free Trade Agreement (NAFTA) introduced the concept of “yarn-forward”.
In order to claim free trade tax preference due to the manufacturing country of origin, the garment must be sourced all the way back to the yarn. In real terms, natural fiber products like wool and cotton can originate from somewhere outside North America but must be spun into usable yarn, converted to fabric, and assembled locally for the final garment to be considered conforming, and thus, traded duty-free between member countries. Garments made with fabric originating outside North America (with a few exceptions) are considered non-conforming because the fabric is manufactured after the yarn. Whereas natural fibers can have the raw materials shipped from outside the Free Trade Member states and spun locally, synthetic fibers are typically spun directly into yarn from plastic extruders, so to gain favorable tax status, they must be done locally. Note this designation is different than the FTC requirements for “Made in USA” labelling.
…we must look very critically at the “yarn-forward” rule. While it protects the upstream portion of the supply chain, the premise requires a fully functional and capable regional outlet for these materials.
“Yarn-forward” is not a new provision, as it was introduced with NAFTA in 1994. Since it covers materials so far back in the supply chain, it is immensely protective of the North American textile industry. One can argue the efficacy of this rule considering the flight of textiles since the introduction. While the apparel industry fights for a regional “cut and sew” standard, the textile manufacturers still push for “yarn-forward”. Even within the supply chain, the answers are not clear.
To be sure, it is a complex issue, but given the manufacturing base of the US is better suited around capital-intensive processes such as yarn and fabric production, rather than labor-intensive processes, it seems that domestic production is hindered by the lack of an outlet (garment assembly) for these intermediate products (yarn and fabric). Indeed, it is these intermediate products that better fit the labor and investment criteria that can make the US globally competitive in the textile and apparel market, but we lack the regional market “pull” from garment assembly to generate the demand for further investment.
If we take US textile exports as a proxy for the distribution of our manufacturing base in the textile market, Figure 2 has broken down all the textile exports (as defined by HTS codes) across the last 20 years. While the total export value is small but constant over this period, the proportion of finished apparel decreases tremendously between 2000 and 2010, then stays relatively constant. This represents the flight of garment assembly to Asia.
Meanwhile, cotton intermediate products: yarns and fabrics, almost double over the same time period. Manmade synthetic fibers and fabrics increase somewhat during this time period, but do not grow significantly. A particularly striking point about this analysis is the stability of the market over the last decade. The value of growth over twenty years has been less than 10% in terms of actual dollars, suggesting that adjusting to real dollars it has been a period of negative growth.
This textile market dynamic occurred in the US export market during a time of significant economic expansion and this stability may be an indicator of the current baseline manufacturing capability in the US. Figure 3 shows production employment at textile mills in the US. During this same period of stagnation in the industry, the employment has remained mostly steady. One stabilizing factor that may have been the balance to industrial flight is the Berry and Kissell Amendments. These laws require the Departments of Defense and Homeland Security, respectively, to purchase 100% US sourced and manufactured products, with apparel being the largest category. Considering these requirements, the overall textile employment may represent the minimum viable industrial base to sustain government projects, and the distribution of manufacturing capabilities mirror those apparel needs to supply this niche market.
All of these factors feed into the nexus of governmental policy and market dynamics that bring us to today. First, and foremost, the continuation of the Berry and Kissell amendments seem to have stabilize the industrial base to some degree. This has left critical infrastructure and sourcing due to the establishment of a niche market that has kept some level of labor in place. Post-COVID, we will hopefully see further extensions of Berry-like laws in place to cover PPE manufacturing and critical medical infrastructure with similar results. This could be a boon to local and regional cut and sew manufacturing since medical gowns require similar process steps to apparel.
Additionally, we must look very critically at the “yarn-forward” rule. While it protects the upstream portion of the supply chain, the premise requires a fully functional and capable regional outlet for these materials. Such a protective rule may, in fact, be harmful to those that advocate for it. For example, an apparel brand is looking to develop a new garment. Evaluating the total cost of manufacture through an Asian versus North American supply chain, there are tax incentives to do so, however, the capability or volume may not exist in the assembly step. Here, the manufacturing capabilities, volumes, and simplified logistics may counteract the tariffs incurred to produce domestically.
This is why the regional supply chain must be developed in a regionally concerted effort. The US must determine what makes sense to develop internally and help provide the appropriate incentives externally to our regional trading partners to exercise their value-added portions as a total apparel supply chain. One piece cannot do it alone. It will require cooperation amongst all the components of the supply chain to make sure everyone can compete vertically. If one piece of the chain cannot gain an equitable share of the total profits regionally, it simply will not exist.
