'Made in USA' denim is hot abroad

It's no secret that most of what Americans wear comes from somewhere else. More than 97 percent of apparel and 98 percent of shoes sold in the U.S. are produced abroad, according to the American Apparel & Footwear Association.

But an often-overlooked exception is jeans, which remain stubbornly "Made in America."

Southern California, particularly the Los Angeles area, has a deep bench of skilled, affordable laborers and apparel infrastructure. As the fashion industry overall has moved manufacturing overseas, agile jeansmakers, mostly small to midsize businesses, have retrofitted factories for jeans production-particularly premium jeans retailing for $75 and up.

It's ironic that Americans wear apparel mostly made abroad, and consumers in Europe and Asia buy American-made clothing-specifically jeans. And while those shoppers snatch up premium denim, Americans are actually buying less of the expensive stuff ( $75 or higher).  

U.S. premium jean sales fell 19 percent for the year ended in August compared with the year earlier, according to the NPD Group. Businesses are getting better at creating fashionable denim at a lower price point, with sales of jeans under $25 up 16 percent.

Meanwhile, generation after generation of young people discover denim's cool factor and iconography. Consider jeans originally worn by gold miners during the 1880s California Gold Rush. Picture the Marlboro Man, reclining on a fence, dust blowing on the plain. James Dean in "Giant."   

"One of the marquee products sold outside of the U.S. is 'Made in USA' denim," said Marshal Cohen, chief industry analyst at The NPD Group. "It's the cowboy."

David Trumbull, a principal with Agathon Associates and an expert in U.S. manufacturing and textiles, estimates that 13 percent of the 23 million pairs of premium jeans made in America annually go to Europe. Fully two-thirds are shipped to the U.S.'s North American Free Trade Agreement partners-Canada and Mexico.

To better understand why American-made jeans have landed in the middle of a tariff battle, consider denim's big margins amid a backdrop of international trade politics.

Targeting iconic American-made jeans

The EU tariff on premium denim pants for women can appear oddly narrow. (Men's jeans are excluded from the duty.) But the EU's decision to target the category was strategic. Politicians could have taxed other American-made goods, such as socks or hosiery. But jeans, which cost roughly $15 to produce, according to Cohen at NPD, enjoys a hefty profit margin. Designer jeans retail for anywhere from $100 to $300.

That means jeansmakers have a lot of wiggle room to take on the added costs of the duty without raising retail prices.

"The tariff will probably cut their profits. But they'll still be profitable-just not as profitable," said Trumbull of the Agathon consultancy.

European leaders also made sure to tax a luxury item rather than one that citizens perceive as a staple, Trumbull said.

"You don't want to hurt your own consumers and pick something that your population needs," he said. "You pick something optional."

There's also the symbolism involved in targeting "Made in USA" jeans with a tariff.

"It's gamesmanship, Trumbull said. "What's more iconic in America than blue jeans? You go after something iconic."

The jeans tariff, which was raised to 38 percent from 12 percent, is in retaliation for America's failure to fully comply with a separate World Trade Organization ruling on duty collection. The U.S. applies anti-dumping duties to certain items to prevent nations from shipping low-priced goods into other countries below fair market value. While such duties are allowed within the organization's framework, turning those import duties directly over to U.S. manufacturers is not permitted, according to the WTO.

With the U.S. still not fully compliant with that ruling, the WTO allowed countries to raise tariffs on U.S. goods. The EU chose to target American-made jeans.

Meanwhile, apparel leaders are continuing to lobby state and federal officials to push back against the tariff.   

"There's a mini-resurgence in 'Made in the USA,' where companies are looking for a business case to make it in the United States," said Lamar at the apparel and footwear group. "The timing of a tariff is never good. But in this particular case it's terrible."