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Clothing prices (Huntley)

Here's a blog post of a single graph, drawn from today's release by the Bureau of Labor Statistics (BLS) of the Consumer Price Index for August 2017. The WTO came into effect in 1995. Until then textile trade fell under the Multi Fibre Arrangement (MFA), a complicated spaghetti web of product-specific, country-specific bilateral quotas. The WTO shifted such trade to most-favored-nation tariffs, that is, from 1995 the US stopped restricting the quantity. You can look at the tariff schedule for one class of apparel. For example, the tariffs for "men's or boys' shirts of cotton" are:
     6205.20.10 00 Certified hand-loomed and folklore products............ 8.7%
     6205.20.20 Other.................................................... 19.7%
This may sound high, but the "shadow price" tariff created by quotas was much higher. Furthermore, demand increased over the past 20 years as incomes and population rose. If the quota had remained, with quantity fixed (a vertical supply curve) prices would have risen. With tariffs, prices are a function of wage rates in exporting countries. If (corrected for productivity) those don't rise, then US prices stay flat.

14 thoughts on “Clothing prices (Huntley)

  1. Ellie Bradach

    According the chart, the Consumer Price Index for apparel and the CPI for all items were comparable until about 1995 when the CPI for all items continued to increase while the CPI for apparel stayed the same. The change of the textile trade from MFA to WTO could account for the divergence, but I also think other factors came into play. I think the growth in technology during this time also contributed to the increased of CPI for all items. Cell phones and computers became very popular during this time, so I think people chose to spend more money on these items than apparel.

    1. the prof

      I'm not sure apparel purchases have fallen – you can find expenditure data, probably a subseries in GDP consumption statistics. We've not yet gotten to the technical part of how the CPI is calculated. As you will see, the rise of cell phones should not affect overall inflation for at least two independent reasons. More later, but this is the sort of question I like to see: what else can cause something, and can we bring data to the issue?

      I actually have a red herring of sorts in my story, but a subtle one. I only spotted it after the fact. More in class on what I got wrong!

  2. hermana20

    According to the graph, the CPI for Apparel and the CPI for All Items increased at roughly the same rate from 1947 to approximately 1974. Then, the CPI for All Items continued to surge upward, while the CPI continued to do so for a little while (although not as drastically) and then tapered off during the 1990's. During the 1990's the CPI for Apparel remained reasonably constant, and then began to drop around the turn of the century and continued to do so until roughly 2011 when it began to pick up again. The increase of the CPI for All Items over time makes sense in the context of inflation, as does the CPI for Apparel from 1947-1974. The fact that the CPI of Apparel began to grow more slowly after 1974 and then taper off and remain constant during much of the 1990's may be reflected by better technology in apparel manufacturing that lowered prices or at least kept them down, and more clothing imports from countries like Bangladesh and India that could produce apparel for much less. Additionally, this trend may be reflected by the fact that most of the clothes we buy now are produced by mega retailers that have vast supply chains around the world, and are focused on providing decent yet cheap clothing in mass quantity.

    http://ww2.kqed.org/lowdown/2013/05/24/madeinamerica/

    1. the prof

      Indeed in some industries technology dominated the (lack of) price changes. As it happens, there's been comparatively little improvements in the textile area, particularly garments. By and large what can be done today (special button hole machines) could already be done in 1900. But that's also a focus on "big" inventions, whereas commercial progress comes in lots of little changes. I surely underestimate the latter, but I don't think by much – I've been through garment factories and shoe factories and carpet factories. Oh, and China remains the biggest player, but is fast losing ground. Why Bangladesh is a fascinating story (cf a largely forgotten but to me classic study, Why the Emperors Clothes are not made in Colombia).

  3. laniere20

    Around 1980, the CPI for all items surpassed the CPI for apparel, and continues to grow at a steady rate while the CPI for apparel does not follow a specific growth pattern. This change may be due to clothing factories creating and using innovative technology, such as robots, that greatly reduce the time and effort required to produce clothing, and therefore reduce the cost of production. Additionally, in the modern world, we always want the newest and greatest item, and producers take advantage of this greed and are able to get away with charging extremely high prices. It is interesting that CPI for apparel has continues to remain relatively constant while the CPI for all items is continuing to grow at a steady, high rate.

  4. Julia Moody

    It makes sense that the Consumer Price Index for all items continued to rise steadily from the 1970's through the 2000's (because these items still had quotas) and that the two graphs separated distinctly around 1995 because of the transition of to most-favored-nation tariffs on apparel. These tariffs ensured that every country that one nation traded with had to be given the same trade advantages as the "most favored" trade partner to that nation. These advantages could include lower tariffs or higher import quotas, which is why we see the CPI graph for apparel not rise nearly as much as the graph for all items.

  5. mcconnellm20

    From the 1970s until the 2000s, the Consumer Price Index for for apparel and for all items increased at comparable rates. However, in 1995, when the WTO came into effect, the CPI for all items continued to increase at relatively the same rate as before, but the CPI for apparel began to somewhat level off and even decrease a little. The WTO shifted trade to most-favored-nation tariffs, which allowed the US to stop restricting quantity. Because of the WTO, the CPI for apparel has this trend on the graph while all other items continue to increase over time.

  6. litvaka20

    From the graph, it can be noted that with the shift toward the tariff on apparel rather than a quota, the Consumer Price Index began a downward trend. This could be because a tariff does not have a maximum quantity that can be imported, but rather just raises the price on the goods imported depending on the total amount. While this could greatly increase the price, it may still not cause the price to be as high as it would be when the goods are restricted by quotas. This is because there may be more of a demand for a good than supply can meet and therefore the price of the limited good becomes very high. Therefore, it can be better, especially in a country wherein there is a larger middle class and the country is able to spend more, to have a tariff and a greater supply of a good rather than a quota causing a limited supply and prices to shoot up.

  7. smithg20

    I found the history of quotas and tariffs in regard to apparel interesting, as it is an industry we interact with frequently. I also found it interesting to learn of the benefits of implementing tariffs rather than quotas, specifically the “shadow price” tariff that quotas create. I also found it interesting how after the WTO came into effect, the CPI index for all items still increased at the same rates while the CPI for apparel items began to level off. I would be interested to learn more about what caused this change in both industries.

    1. bashamc20

      Note: I'm replying to this comment because I am unable to comment on the actual post, and Professor Smitka instructed me to post my comment onto someone else's comment.

      I found that the history of the Consumer Price Index, particularly as it pertains to apparel and other clothing items, is incredibly interesting. This metric speaks volumes about economic policy, particularly as it pertains to trade. It tells us that restricted trade can spur increases in the Consumer Price Index; likewise, it indicates that removing restrictions on supply (quotas) helps to level out prices. The graph attests to this, and the two are directly correlated. The existence and subsequent actions of the WTO serve to attest to the fact that tariffs, at least in this case, prove more economically beneficial to the consumer than quotas on trade. The shadow tariff created by quotas, in fact, outweigh the strength of the actual tariffs since implemented by the WTO. The WTO has clearly proven beneficial to the consumer. The CPI for apparel has lowered since 1995, while wages and income have since risen. This change in wages and income coupled with a flattening in the CPI makes apparel-related goods more cheaper to the consumer than they otherwise would be today.

  8. Kaitlyn Fitzsimmons

    The switch to WTO’s ATC from the Multi Fibre Arrangement meant the elimination of quotas. I'm assuming this lead to an increased emphasis on natural competition and transparency. Without quotas, exporters shouldn’t have the need to illegally use third parties to transport their goods or lie about the source of the goods.

    Reading the Harmonized Tarrif Schedule showed me how complicated the garment industry really is. The typical clothing-wearing American may not know the technical difference between “knitted or crocheted,” but this document makes the distinction. This isn’t a simple industry trading barrels of cotton like I may have once imagined. I expect this complex document regulates much of the selling, manufacturing and distribution of these clothes. I’m assuming the design step of manufacturing, which determines which garment identification it gets labeled as, can play a large role in tariff prevention.

  9. gianakosa20

    The graph of the CPI for apparel leveled off around 1990, while the graph of the CPI for all consumer products continued to rise.

    The graph reinforces what we already know. The United States imports most of the apparel that is bought and sold from other nations where unskilled labor is cheaper and mass manufacturing is much more common. I wonder, as the graph might suggest, if the plateau of the CPI for apparel is due to an increase in imports, and for that reason the average prices of clothing in the United States were unaffected by inflation? And if so, how did the WTO influence this?

  10. mitchelld20

    It is interesting to look at the cpi for all apparel from 1960 until now that the steepest drop in prices comes during the great recession and the housing collapse of 2008. The drop is obviously contributed to people having less money, therefore spending less on non-necessity items. However, since 2008 the prices for apparel has steadily decreased since 2008, only recently increasing slightly in 2011. I cant necessarily figure out why apparel took much longer to begin increasing than all items did, but I can guess that people prioritized other items over clothes since 2008 when they had less money to spend.

  11. the prof

    Flat wages in the developing world and steady/falling shipping costs = flat costs for clothing in the US. That's the disconnect between textile prices and overall consumer prices.

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