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Photo Credits: Unsplash.

How the US 25 percent trade tariff increase could hit EU and UK fashion

By Jaime Martinez

Jun 9, 2021

The United States announced recently that it would apply a tariff increase of 25 percent on goods from three European countries, as well as the United Kingdom, Turkey and India. The measure was soon suspended to allow for international negotiations to proceed.

The 25 percent tariff increase was announced in response to the EU’s decision to apply taxes on different digital services and e-commerce giants such as Google, Facebook and Amazon, also known as the ‘Google tax’. Despite the temporary suspension, some of the countries mentioned previously have already seen their industries affected, which would only be exacerbated if the US does indeed decide to apply the tax after the suspension period. The United Kingdom, Spain and Italy fear for their footwear industry in particular.

Photo Credits: AEC Spanish Association of Footwear Component Companies.

2020: The USTR starts an investigation in response to the digital tax

A little over a year ago, on June 2, 2020, the Office of the United States Trade Representative (USTR) began a detailed investigation into Austria, India, Italy, Spain, Turkey, and the United Kingdom, in order to determine the measures to be adopted in response to the digital tax which certain countries had begun to apply, or were considering applying, to e-commerce companies based in the US. The USTR investigated different economic sectors in each country, in order to adjust the levies to what its experts estimate that each country can collect with the application of their respective taxes on digital services. A maximum period of 1 year was agreed for the investigation, which ended with the agreement to exclude the Czech Republic, the European Union and Indonesia from the measures, since they had not proceeded to apply the digital tax. Based on the findings of the investigation, the USTR concluded that the new tariff measure would be imposed on each of the six countries aforementioned.

Last week, the measure was postponed for a 180-day period with hope that the negotiations between governments on the application of this type of digital tax, from multilateral bodies such as the OECD or the G20, benefit in the different international spheres. Thus potentially avoiding the looming tariff hike.

Warning: A "domino effect" could end up dragging down the entire footwear industry in Spain

The US government announced it will seek to equally administer this new increase in tariffs on the footwear industry on Spanish, Italian and UK-made footwear. Production countries for footwear fear a domino effect that would end up taking with it a good number of manufacturers.

According to the Spanish Association of Companies of Components and Machinery for the Footwear and Leather Goods Industry (AEC), the United States is “by far” the largest importer of footwear in the world, buying one out of every five pairs of shoes manufactured worldwide, the association stated in a press release.

Business groups are seeing, in addition to the sharp drop in sales and the difficulties resulting from the current coronavirus pandemic, there are now the dangerous consequences of the open trade war between Europe and the United States. The trade war in question is a conflict that has been going on for more than 15 years and started on account of the Boeing-Airbus subsidies. For now it seems that it will continue without an end despite tensions potentially thawing between the US and the EU, with the changed approach of the Biden administration. A new US foreign policy that is in stark contrast to the marked confrontation that previously characterized transatlantic relations between Europe and the United States, during the presidency of Donald Trump.

British footwear and other goods affected

The list published by the Office of the US Trade Representative (USTR) mentioning British goods affected by the 25 percent tariff increase, includes goods worth a total of 887 million dollars (627 pounds). Apart from footwear, the list details clothing, overcoats, and cosmetics, the Guardian reported.

Spain: footwear and leather goods

In Spain, the footwear sector, together with leather goods, hats and glassware, stands to be most impacted by the US government’s decision. The United States has threatened to impose a 25 percent tariff increase on goods from Spain worth a total of 323 million dollars (228 pounds).

The United States occupies a key role for Spanish footwear companies. Solely during the last financial year of 2020, they exported a total of 3,557,025 pairs of shoes to the North American country.

United States’s local businesses not left unscathed

Objection has already brought a good number of orders from North American firms footwear firms to a halt, at least for the time being. US businesses are waiting to see if the federal government finally imposes the 25 percent tariff increase on imports of certain products from Europe, Turkey, India and the United Kingdom. A countermeasure through which they would seek to compensate for the damage that, in their opinion, the governments of this series of countries would be causing to American technology companies as a result of the imposition of their new or already announced taxes on digital companies.

And “in the case of footwear,would entail a tariff of 35 and 37.5 percent," explained the Spanish Association of Footwear Component Companies (AEC) in a press release. These percentages are "unaffordable for U.S. buyers", resulting "from the 10 percent and 12.5 percent that they already assumed and to which they are now charged an additional 25 percent".

This article was previously published in two versions on FashionUnited.ES. Translation and editing: Veerle Versteeg.