On May 14, the United States government announced that it would raise tariffs on a target list of Chinese goods valued at US$300 billion from 10 percent to 25 percent. The list of products ranges from agricultural products to clothing, household items, mobile phones and notebook computers, sending a shiver of trepidation through the global supply chain.

Although it will take a month before the tariff list is finalized, the brands on the table have responded sharply, including Nike and Adidas. The two companies were among 173 footwear brands to slam the president in an open letter, noting that the burden of higher tariffs will be passed on to consumers. As 70 percent of the shoes imported to the U.S. originate in China, it would result in excessive cost to American consumers, they stated.

Under the surface, orders are quietly being diverted to alternative sources. Just a week after the target list was revealed, an order for 300 million pairs of socks was made to a small village in Changhua with a population of just 40,000 - Shetou.

Changhua locals have a saying: “Shetou has an abundance of three things, guava fruit, socks, and CEOs.” Sock looms have made quite a few CEOs possible in Shetou, which produced over NT$10 billion in production value during its heyday.

US-China Trade War Gives New Hope to Shetou Sock Industry Cluster

However, due to various factors such as the U.S.-Korea free trade agreement and cost-cutting competition from Chinese manufacturers, the Shetou sock industry has seen that production value plummet by two-thirds, sending it urgently looking for alternative directions to pivot. Now, the U.S.-China trade war could pose new opportunities for Shetou.

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Last week, Wei Ping-yi, president of the Taiwan Hosiery Manufacturers' Association, received an indirect enquiry from a merchant who had orders for 300 million pairs of athletic socks for the U.S. market. Those orders were originally set to go to China, but now they were in a hurry to shift them to another country of manufacture, possibly Taiwan. The client had already given him a catalogue, and is now awaiting samples and cost estimates.

Although the merchant is still assessing the pros and cons of selecting a new manufacturing base, if orders are indeed placed, it will start making purchases in small quantities, thus the benefits yielded from diverted orders remain to be seen.

“Taiwan has the capacity to accommodate the entire 300-million quantity,” asserted an excited Wei, adding, “Taiwan may not be the cheapest, but we are formidable in our capacity to modulate production.”

The wonder of Shetou’s textile industry is that major manufacturers and small production facilities collaborate like worker ants, developing over a thousand different styles of socks for customers in just one year. (Photo by Chien-Tong Wang/CW)

Shetou’s past outstanding overseas sales can be credited to the unusual local ecosystem, in which large manufacturers like Wei Ping-yi’s Queentex parcel out orders to other small satellite factories. Sometimes these factories are so small they have only one or two weaving looms, and the boss is the only employee.

“We have zero investment in China,” relates Wei. “Ultimately, (the trade war) is a net positive for Taiwan.”

Can the Dividends from Redirected Orders Last?

However, if there is an abatement of the U.S.-China trade war, will Taiwan still have a chance to get diverted orders? This is also Trust Me International director Sung Wei-yi’s concern. Sung observes that the main issue is that China has more advantages than OEM manufacturing costs.

“Over the past 20 years, China has made great strides in the development of raw materials, offering a full spectrum of varieties. And Taiwan could have trouble keeping up in this area over the short term.” He notes that China has a huge demand for domestic and overseas sales, and has fostered a comprehensive sock manufacturing industry chain. “For instance, just in terms of cotton yarn, whether I want to move up or down, they have more types than Taiwan.”

Even though some in the industry have moved their manufacturing facilities from China to Vietnam, “raw material still comes from China.” In comparison, Taiwan’s chief advantage in raw materials is the high-end functional fiber under the grasp of the local textiles industry that permits it to manufacture high-end functional socks. Accordingly, this is a different competitive market from the high-volume cotton sock market.

Further, sock production still requires human workers. “Setting and cock work has been declining by the year,” observed Sung. Similarly, according to Sung, the gap in workers also forced the Shetou sock manufacturing community to develop products with higher unit prices and adjust its product structure.

While Taiwan’s little sock-making township could gain some dividends from redirected orders due to the trade war, over the long term it would take a prolonged period of transformation for Taiwan to take on China.

Translated by David Toman
Edited by Sharon Tseng