Scribble

Audie Cornish

00:00:01

First, thank you for pressing play on this episode because, like, tariffs.

Christina Binkley

00:00:09

'You're absolutely right. Mostly when you tell people you're talking about tariffs, they look like they're about to get a colonoscopy. I find that actually interesting. You can talk to people about taxes and they're like, oh, taxes. But you use a different word for the same thing--tariffs is just a tax--and people's sort of eyes roll back in their head.

Audie Cornish

00:00:29

'Christina Binkley is going to help me out with this assignment. She's editor-at-large at Vogue Business and she says "tariff people" are the secret weapon of fashion industry accounting.

Christina Binkley

00:00:39

'Have you ever bought a pair of shoes that has a small, thin piece of fabric kind of glued onto the plastic sole? It's going to wear off after you wear it for three months. The reason for that is that cloth-soled shoes have a lower tariff than any other kind of sole, so you can get around paying that tariff if you just put a piece of gauze on the sole that wears off by the third wearing.

Audie Cornish

00:01:03

That's...I don't even know how to feel about that.

Audie Cornish

00:01:10

But after Donald Trump announced his plan to raise tariffs 10 percent on China and implement a 25 percent tariff on Canada and Mexico, well, the "tariff people" are getting busy, and the threat of high prices in the new year is already haunting holiday shoppers. And the companies that could be affected by tariffs have already started lobbying to dodge the worst of it. I'm Audie Cornish, and this is The Assignment.

Audie Cornish

00:01:45

Now on TV, my conversations about tariffs, well, they go something like this:

Kevin O'Leary

00:01:49

'Well, let's start with this is not official policy. This is Trump putting out a social media post on his own platform, wakes the whole world up--

Audie Cornish

00:01:58

Which can still move markets, right? I mean, that's...

Kevin O'Leary

00:02:00

He did. He did.

Audie Cornish

00:02:00

This is Kevin O'Leary. He's a star Shark Tank investor, Trump supporter and chairman of O'Leary Ventures.

Kevin O'Leary

00:02:08

This is a classic Trump negotiation. This is chapter four of his book. He's got a mandate. Obviously, he won a landslide election on this issue, protecting borders. They brought Canada into it as well. But you got to remember, there's a huge.

Audie Cornish

00:02:23

And it goes, okay, well, that's all well and good for political arguments about immigration, but that doesn't mean the people who make and buy products aren't going into the new year with their eyes wide open.

Christina Binkley

00:02:34

'I talked to one fashion executive, a CEO, who said, "It's not quite time to panic yet." What she was meaning was she wanted to wait and see if he's able to do these tariffs and whatnot. But you've also, we've also seen a string of people pouring into Mar-a-Lago, many of whom are most certainly talking about tariffs.

Audie Cornish

00:02:55

Ooh, say more.

Christina Binkley

00:02:56

'Well, Justin Trudeau was there a day or so after Trump said he wanted--

Audie Cornish

00:03:01

Right, right, leader of Canada.

Christina Binkley

00:03:02

Yeah, we hear about the world leaders who are there, but you absolutely know that there are industry veterans, there's lobbyists, there's people. Remember when Trump had the rally at Madison Square Gardens? One of the people there was the son of Bernard Arnault, who is what? The second richest man in the world and owns LVMH.

Audie Cornish

00:03:22

Which people for people who don't know because like, my husband will listen to this,.

Christina Binkley

00:03:26

Okay, Louis Vuitton.

Audie Cornish

00:03:28

'Yeah, Louis Vuitton. But also and Moët. Just like every luxury brand you could think of, just balled up--

Christina Binkley

00:03:35

Absolutely.

Audie Cornish

00:03:35

'.--together under the world's most expensive umbrella.

Christina Binkley

00:03:38

Right. Most of which is produced in Italy and France and would be hit with tariffs when it's brought into the United States, which is their biggest market. So the son of Bernard Arnault was at Trump's rally in Madison Square Garden. People wondered why? Well, he hasn't commented on why, but you can guess that he was there because they need the relationship, right? That's not the first time the Arnault family has reached out to Trump to sort of build a relationship. So, you know, we're seeing people scurrying because it's really going to be important to so many businesses to negotiate reductions or exclusions from tariffs, which happen all the time. I actually enjoy talking to tariff people because they're like they're like the actuaries of the governments. I mean, they're just, they nerd out at levels. And one of them last week told me that the U.S. tariff code, every single line is a separate tariff and the US tariff code is 111,404 lines long. That's how many tariffs we have. Most of them are for apparel. The U.S. raises more money from apparel tariffs and steel or autos or any of the other things that we tend to think about, so it's really big numbers.

Audie Cornish

00:04:45

Does that count all the exemptions And loopholes that you're talking about?

Christina Binkley

00:04:49

'Many of those are exemptions. Yeah. And it gets detailed. We have separate. In the United States, we have what people call pink tariffs, people who buy womenswear pay higher tariffs than people who buy menswear. The tariff on a pair of women's cotton underpants is $1.15. That was last year. Seventy-five cents is for a man's pair of cotton briefs.

Christina Binkley

00:05:11

So.

Audie Cornish

00:05:12

They're both cotton.

Christina Binkley

00:05:12

They're both cotton.

Audie Cornish

00:05:12

They're both undergarments.

Christina Binkley

00:05:14

They're both underwear.

Audie Cornish

00:05:14

What's the difference?

Christina Binkley

00:05:16

I don't know because, I mean, I'm trying to find the person who was in the room when that was decided. I cannot find them.

Audie Cornish

00:05:22

You will be back, okay, because I need answers.

Christina Binkley

00:05:26

Yes, 'cause the, the women's panties have less fabric involved than the men's briefs, right? It doesn't make any sense.

Audie Cornish

00:05:33

Yeah, and yet. You mention this thing about underwear. Can you talk about some of the other weird ways that tariffs play out or that manufacturers try to take advantage of loopholes?

Christina Binkley

00:05:49

'Well, they immediately start looking. It's probably algorithms by now. But, you know, until very recently, it was done with spreadsheets and you would go through and look at where do you get your zippers from? Where is like--they'll do things like take a piece of a zipper that could be produced in a non-tariff or a lower tariff company and add that to the rest of the zipper that can't be produced there, so we're talking about tiny, tiny little parts because handbags and shoes are different, but actual clothing is a very low margin industry and if they can save a half a cent per garment, that's real. By the time it gets added up to the final cost of something,.

Audie Cornish

00:06:26

Right. And we're in the age of fast fashion. When I think about markets like children's clothing, like especially Americans, we, churn through a lot.

Christina Binkley

00:06:35

Yeah, we do unfortunately. We've got to fix that. Audie, that's something. That could be important. One of the things that people hope can come from something like tariffs, A, is that you, you can use them to force production closer to home. It's not impossible to produce clothing entirely in the United States. There are companies that are doing that right down to the fabric. We have a huge cotton industry in the U.S. We have a huge industry of producing textiles cloth for exercisewear because that can be very automated. So in places where we're obviously a high labor cost country, but we also have the resources and the ability to invest in automation.

Audie Cornish

00:07:15

'So help me understand this then, because, you know, I was reading this New York Times story where they were basically had reached out to smaller independent retailers. Right? Like, uh, I'm in Brooklyn and I make Selvedge denim or whatever. And they were very worried. But one of the things one of these young business leaders said is he said the best cut-and-sew in the world comes from China. China is so advanced in that space that there's really no place to go and pick up that slack from. I was kind of surprised to read it. But he he in the article and said like, basically, Americans have no idea just how far behind they are in this particular area of manufacturing. Is that true?

Christina Binkley

00:07:55

'It's very true. Ninety-eight percent of the clothing we consume is produced elsewhere. That's why. Most of it came from China. And then Trump slammed the tariffs on China when he was in office last time. But also, China is no longer the low cost labor leader anymore. I mean, they're actually considered when it comes to fast fashion, China is considered expensive. And the reason is that it's not just low paid people sitting at factories. They've highly automated their factories. They've invested massive amounts in production and being able to produce a lot of stuff very quickly. It's not impossible to think that we could do that in the United States, but it doesn't make sense for any single producer to invest in that kind of factory when somebody in China can do it. So that's where the argument for tariffs comes in, if you place tariffs--

Audie Cornish

00:08:45

Well, it's interesting, because we're like many years after NAFTA. We're also a couple years after Trump 45's original wave of tariffs, much of which the Biden administration stuck with. So, like, how has the industry been in the aftermath of the pandemic?

Christina Binkley

00:09:02

'Well, you had a huge a huge shift because of the Trump tariffs on China. Essentially, if you could move your production out of China, you did. The only production that's left there is stuff that China is really good at it and that people can't find enough. But you started to see clothes. If you look at your tags for clothes that you've bought in the last few years, they're going to be from Vietnam--is a huge producer--, the Philippines, there's a lot of Malaysia. So we had a shift of factories around the world and a huge shift of employment too, right. This is millions of workers. Another thing that happened as a result of Trump renegotiating NAFTA was that there were then benefits to producing sort of near shoring. So some in Canada, Mexico and Guatemala, for instance, were big beneficiaries of of renegotiating NAFTA. So now a lot of our clothes are coming there being cut and sewn in Guatemala. Sometimes, they're finished in other places. So we've we've just had in the last few years a global shift in where apparel factories are and who's making our clothes.

Audie Cornish

00:10:00

In part because of these economic policies of the United States, right, like wave of tariffs, the pandemic, and the concern about the supply chain, like there's been a lot of forcing these industries to make shifts.

Christina Binkley

00:10:13

Yeah. Tariffs were probably the primary cause of the of the moving the factories around. That's what I mean pandemic, it changed what people want to wear. And now suddenly we need factories producing sweatpants. But you know, the reason we have factories in Vietnam producing them instead of China is because of tariffs. So they are a really powerful way of impacting a supply chain and where companies produce.

Audie Cornish

00:10:40

'Christina Binkley is editor-at-large for Vogue Business. We'll be back in a minute.

Audie Cornish

00:10:53

There's also this ongoing conversation about whether or not brands had been jacking up their prices, especially after the pandemic. Democrats talked a lot about price gouging and obviously they talked about it in the context of grocery prices. But I also saw murmurs of it in the fashion industry, right? There's been this ongoing conversation about luxury fashion versus mass luxury fashion. And just the idea that, like what makes something desirable somehow for a while seem to be just high, a high price, and that maybe there's some room there for them to be nudged around. I mean, I don't know. Is that in the context of this price conversation, price sensitivity?

Christina Binkley

00:11:41

'Well, yes, definitely. There's a reason why the man who controls a massive segment of the luxury industry is the second--he goes back and forth, Bernard Arnault, between the first and second--richest man in the world because it's really profitable to produce luxury goods. On the other hand, you know, we have fast fashion and we have ultra fast fashion like SHEIN and Temu, that are producing massive quantities of clothing at very low margins. When you order something from she and her team, you if it comes from overseas, you're getting a package that has not paid a tariff. It is excluded from tariffs because it is a small individual shipment. That's according to U.S. laws that were trying to encourage e-commerce in the early days. And what we ended up with is building an industry overseas, mostly in Asia, that would drop-ship small shipments directly to consumers to avoid tariffs. That's a huge opportunity for the U.S., and there there's there's support in in Congress to try to--

Audie Cornish

00:12:45

'--to update e-commerce laws to reflect just how big the business is.

Christina Binkley

00:12:49

'Yeah. To to stop excluding drop-ships and most shipments from from tariffs would be the idea. So that is hugely benefited ultra fast fashion. They they pivoted to that. Now on the other hand you have luxury fashion, and I think it's very safe to argue that they've taken advantage of all of the supply chain disruptions, the pandemic, tariffs, whatever it is, to increase prices on products where they can.

Audie Cornish

00:13:16

And are suffering. Yeah, I was reading your Gucci's, your Burberry's like they actually are seeing sales slump.

Christina Binkley

00:13:22

Yeah. The ones that depend on what is sort of known as euphemism as aspirational luxury. I call it luxury for people who really can't afford luxury. So, yeah, Gucci is hurting. Vuitton is hurting. They sell a lot of logo'd handbags and clothes like that to people who aspire to be luxury shoppers. Guess who's not hurting? Hermes. But they aren't marketing themselves to the aspirational consumer. So if your consumers are truly wildly wealthy. They don't really care about a small increase in price or a big increase in price based on a tariff. They want what they want and they can afford it.

Audie Cornish

00:14:01

But if your consumer has what I think was lovingly called "affluenza," I don't know where I read that, where they're not quite there, but they're close, they will feel that price shift.

Christina Binkley

00:14:14

It's really easy to not buy that logo handbag.

Audie Cornish

00:14:18

Why is it automatic that companies would pass this cost onto us? You know, almost immediately after this became news, the head of Columbia Sportswear just came out and said, we're we're set to raise prices if this is the case.

Christina Binkley

00:14:34

Well, if you're a publicly traded company, you're worried about your margins and Wall Street's going to hammer you if they get crunched. Those companies, in some ways, you might argue, have more leeway. Then you have an entire industry of small fashion brands that literally can't afford to pay those tariffs and not pass them on and prices somehow. So, you know, it's simply a matter of what the price can bear. And if the if consumers can't bear the increase in price, the brands will go out of business. That's I mean, that's happened before and it will.

Audie Cornish

00:15:05

Can you give an example?

Christina Binkley

00:15:07

You know, here's the thing. I couldn't give you an example of a company that went out of business because of tariffs, because it's never that clean when a company goes out of business. Right. There's a million things, how much money they borrow and whatnot. But just as we saw in the wake of the pandemic, we saw a couple of years later.

Audie Cornish

00:15:21

Restaurants close.

Christina Binkley

00:15:22

Exactly right. And you can assume that the really smart ones stayed in business. Maybe. Maybe it was because they were so much more agile. But we'd see broad economic impacts because of tariffs, for sure. And there's literally no chance that prices won't increase if tariffs are imposed on whatever industry it is. Now, how much it gets passed on. Sometimes companies absorb part of it. That's also possible. Also, some companies take it as an excuse and raise prices even more than the tariff impact.

Audie Cornish

00:15:53

You've got to my next question, Christina. So heading into Black Friday, there was a lot of like, "Tariffs! Buy now," because you don't know what it's going to be like and companies coming out and saying, well, we're buying stuff now and it'll be more expensive because we have to buy for Fall 2025. So you guys need to take advantage of the sale right now. And I'm not going to say I don't trust corporate America or corporate retailers, but I don't. And so there's this sense of like, it wouldn't be the wildest thing for them to take advantage of the fear and the headlines, frankly. And am I am I wrong? No.

Christina Binkley

00:16:35

You are not wrong, Audie. Okay. First of all, we're all responding to some social media comments.

Audie Cornish

00:16:44

But he did do tariffs the first time around.

Christina Binkley

00:16:45

He did do tariffs.

Audie Cornish

00:16:46

Like, it's not as though. We were in a trade war.

Christina Binkley

00:16:50

Yes.

Audie Cornish

00:16:50

So that's why every time someone says to me like, well, we don't know if this will happen. I'm like, We don't. But we've seen that he easily would do it.

Christina Binkley

00:16:57

We know he'd do it. We don't know how he'd do it. We don't know how much. There are, by the way, questions about whether he can do it unilaterally. Right. Right. We have negotiations. It's true that he could try to do it on Day One. It's also probably true that there be a lot there could be lawsuits. There could be a whole lot of maneuvering. And the tariff consultants and the trade lawyers are gearing up right now. I mean, they're firing up their spreadsheets. They're in their gyms, pumping iron, getting ready to fight this out.

Audie Cornish

00:17:24

What I've heard from you is that there's like trying to figure out how to get around these tariffs if they ever come to pass. There's also just lobbying, right, to maybe make sure they don't or make sure your company is exempt. Right. Then there's fighting it. Right. So there's a couple of steps before resignation, acceptance and passing on the price to the consumer.

Christina Binkley

00:17:46

'Yeah. I mean, one of the things you hear people sort of say in their voice will trail off is kind of, well, what about NAFTA, which, by the way, isn't called NAFTA anymore because it got renegotiated and I forget the name--the American something or other--but we do have trade agreements in place. And it's not clear that a new president can just come in and say goodbye to that.

Audie Cornish

00:18:04

I think it's the USMCA.

Christina Binkley

00:18:04

Thank you.

Audie Cornish

00:18:04

I think what it might be called now, but just the idea that like, there's still some incentive to push back.

Christina Binkley

00:18:17

Oh, there's incentive. There is incentive. I mean, this is honestly, if you can go into trade negotiations or tariff laws or tariff consulting right now, the next six months are going to be your heyday. You know, this is your Bahamian vacation coming up. These people are in high demand right now and will continue to be until this smooths out.

Audie Cornish

00:18:38

One of the stories I used to have to do every election year after the election was the Hemline Index story. And this is this is an economic theory that says the length of women's skirts or hemlines rise when the economy is doing well, fall when it's not. So like short hemlines in the 20s fall after the '29 Wall Street Crash, right. You're wearing longer skirts then. [They] rise in the 60s. Then, 70s it's maxi skirt time, right? So when you look at the state of things of fashion and business, what are we seeing that is about the economy?

Christina Binkley

00:19:14

Let's look at quiet luxury. Let's take one right there. Right. Quiet luxury came in on the heels of a period of a lot of bling. And when I talk about bling, I'm not just talking about loud hardware, but literally logo handbags. If you look back at what happened after the 2008 and 2009 financial crises. Logos went out. They stopped being produced largely. There was probably a good seven eight years when logos were not cool, and then they began to creep back in as the economy got better. By the way, this is my hemline index, right?

Audie Cornish

00:19:47

Yeah, we could call it The Logo Index. You need to copyright right now. This is yours. This is yours, Christina.

Christina Binkley

00:19:53

Thank you.

Audie Cornish

00:19:55

But I see what you mean, because during the pandemic, it was like if everyone else is locked down and broke, you can't just be on social media, right? The term was at that time "flossing." That's out now. But like you, the quiet luxury was you don't need to know how expensive this is because also I think you might be mad at me.

Christina Binkley

00:20:13

Or yeah, if you if you don't know, you won't be mad at me because you don't know. And if you do recognize a beautiful Brunello Cucinelli doubleface cashmere sweater, then you and I are in the same club. That's our secret handshake that we recognize. And you do start to see. I noticed this year, Zegna, the Italian luxury brand Zegna, known for its menswear, introduce you could call it a logo, but its two tiny little lines parallel to each other that it places in various places. You you could almost think it was a stitching error. It's so small.

Audie Cornish

00:20:44

But it's if you know. You know if.

Christina Binkley

00:20:46

If you know, you know. Right? It's like, so this is the quiet luxury logo where you want to have a hint. You want the secret handshake, but you don't want to be loud about it. And I think we're heading I mean, we've been in quiet luxury for a while. If we have a global trade war, it's not going to be good for the economy. We're probably going to see more quiet luxury for the wealthy people. Of course, not everybody can afford that, and so you're going to have to see you're going to see other trends, maybe longer hemlines, darker colors for everybody else.

Audie Cornish

00:21:16

'Are those any of those things related to material costs? Manufacturing costs? You know what I mean? Like making outfits that have a certain kind of neckline because it's cheaper than making a V-neck or I mean, I'm making that up. But are there designs and approaches that are, in effect, price-sensitive because of manufacturing?

Christina Binkley

00:21:37

Oh, I can give you a whole list of them. Sleeveless dresses, way less expensive and sleeveless shirts: way less expensive than sleeves. So when manufacturers are facing cost crunches, doing more sleeveless things is big helpful. You might remember this was another thing that happened after the 2008 and '09 financial crisis. Exposed zippers became a thing and by exposed zippers, that means it became a fashion thing. It was a trend. But you could see the zipper from the outside going up and down the back of a dress, almost as though you were seeing it from the inside because they didn't do all the extra work to sort of hide the zipper. That's way less expensive. There are a lot of sort of little tweaks that can be done to clothing. You can also, by the way, as a result of tariffs, switch types of materials. Polyester is a higher tariff than cotton. So you do see manufacturers switching the types of materials that they do.

Audie Cornish

00:22:31

'So what are you going to be looking for in the next couple of months, either on runways, on, you know, fashion TikTok, but also, as you said, like who's visiting Mar-a-Lago, who's coming to the forefront of economic policy? Like what are the different things you're kind of keeping an eye out for?

Christina Binkley

00:22:53

'I wish I could have a roll call for everybody visiting Mar-a-Lago. I honestly think that that's the best way anybody could have an inkling of what might come in the first few months of the new Trump administration. If I see French luxury executives going in there, then I think that very likely that they're talking about tariffs coming out of France and Italy and what that, you know, what kind of impact that could have or maybe they can avoid that or have smaller tariffs. Right. It depends on who's in there. I can't tell what the conversations are. But, you know, it goes back to the executive who said tariffs are when the good get going, like the smart people are going to be in there working their ankles. When it comes to tariffs, there are always angles. I mean, we we talk about blanket, 25 percent tariffs. They're never that's why the tariff code is 101,440 lines long.

Audie Cornish

00:23:41

Yeah. Because that would, that would be one sentence, right? Yes, exactly.

Christina Binkley

00:23:46

Exactly. Runways are always interesting because they're they're sort of way ahead of everybody else. Right. And they're really about what these sort of canaries in the coal mine, these creative fashion directors are feeling at a time. And right now, you know, they're under pressure. Their CEOs are worried about tariffs and whatever else, the global economy. So they're hearing that they're feeling whatever else they're feeling. You know, there's a general level of angst. I'm going to guess that the runway is come next year, February, March, are going to be pretty somber affairs. We'll see.

Audie Cornish

00:24:23

I feel like once upon a time, couture fashion, let's say, and even the Vogues of the world, because they're supposed to be aspirational, they sort of seem to float above our economic realities. Yeah, right. And I feel like the TikTok generation, fast fashion and ultra fashion, the like fashion bloggers that have come to the forefront and Instagram, all that has made them much more, I don't know, like they're feeling a tap on the shoulder. Right. And so some aspects of retail, clothing, fashion, they were kind of ephemeral and they could kind of get away with a lot. And it feels like all of this is happening at a moment when they feel particularly sensitive about their ability to dictate to us how things should look and where they're going to go.

Christina Binkley

00:25:18

I would even argue that they realize that they can no longer dictate to us. You know, if you look a few years back at the advent of streetwear, that did not come from fashion magazines. And it absolutely dominates fashion today. It's fabulous. I'm sitting here in a in a hoodie and jeans, Right. I don't I get dressed up for almost nothing anymore because, because, because that's how I like to live. And because streetwear made that they gave me permission.

Audie Cornish

00:25:50

Well, Christina Binkley, thank you so much for for hashing this out with us and nerding out with us about trade policy.

Christina Binkley

00:25:58

My pleasure.

Audie Cornish

00:26:01

'Christina Binkley, she's editor-at-large for Vogue Business, where she covers the business of culture and fashion. This episode of The Assignment, a production of CNN Audio, was produced by Grace Walker, Sofía Sanchez, and Dan Bloom. Our senior producer is Matt Martinez. Dan Dzula is our technical director and the executive producer of CNN Audio is Steve Lickteig. We had support from Haley Thomas, Alex Manasseri, Robert Mathers, Jon Dianora, Leni Steinhardt, Jamus Andrest, Nichole Pesaru, and Lisa Namerow. Our special thanks, as always, to Katie Hinman. I'm Audie Cornish. And thank you for listening.

The Assignment with Audie Cornish