Experts say, COVID-19 pandemic could trigger the biggest economic contraction since World War II. Already, it has led to a 3 per cent drop in global trade values in the first quarter of 2020. These values could further decrease by around 32 per cent in 2020 with global growth declining by 3 per cent. COVID-19 has also caused supply chain disruptions in many globalized industries such as precision instruments, machinery, automotive and communication equipment, textiles. Catering to non-essential needs of consumers, the fashion industry faces a greater risk as lockdowns across the world could lead to a global decline in demand for clothes.
US, Europe emerge as new trade hubs The accession of China to the World Trade Agreement in 2001 and the expiry of the WTO Agreement on Textiles and Clothing in 2005 made China an important centre of textile and clothing global value chains. As a result, most of the global apparel production and sourcing shifted to China and other Asian countries that offered cheaper labor.
However, wages gradually rose in China and Chinese plants moved to other low-wage countries like Bangladesh, Pakistan and Vietnam. Yet, at the global level, China remains an important supplier and consumer of fashion goods. In terms of fashion trade, besides China, United States and European countries like Belgium, Germany, France and the UK are the emerging fashion trade hubs. China was also the first country to stop production post COVID-19, followed by other countries. This led to many European and American retailers canceling their orders and shippers invoking ‘force majeure’ clauses within their contracts to halt their payments.
Bleak future for developing countries
As the epidemiologic situation has impacted the availability of skilled workforce and multimodal logistics in China it could lead to a shift in production of fashion goods to other sourcing countries that are resuming production faster and are also closer their retailers.
As most developing countries do not have financial means, health systems or social safety nets to respond to the economic impacts of the COVID-19 pandemic crisis, the International Monetary Fund, the World Bank and others have announced various assistance packages for them. Yet, the future prospects of these low-costs sourcing countries appears bleak as they are highly dependent on textile and garments exports for revenues. How these weakest links of the supply chain emerge out of this unplanned humanitarian and financial crisis remains to be seen. Whether the current crisis generalizes new models such like season-less designs’ or increase local sourcing, it will definitely impact the trading patterns in future.