Anamika Dey, editor
Synopsis
- PVH Corp., owner of Calvin Klein and Tommy Hilfiger, has been blacklisted by China, potentially leading to store closures and halted manufacturing due to its refusal to source cotton from Xinjiang.
- The blacklist is a retaliatory measure amid ongoing U.S.-China trade tensions, with uncertain future actions from China.
- Analysts warn that PVH’s operations could face significant disruptions, impacting its supply chain and production quality, as it navigates the consequences of being targeted in the trade war.
Detailed
The owner of Calvin Klein and Tommy Hilfiger has been blacklisted by China, which could result in the company having to close its stores and stop manufacturing. This is one of the first consequences of President Donald Trump’s trade war.
On Tuesday, China placed PVH Corp. on its list of “unreliable entities.” This gives the Chinese government the right to impose fines on the store, prevent it from importing or exporting goods, revoke work licenses, and deny staff entry into the country, among other ambiguous powers.
On Tuesday, the Chinese government formally added PVH to its blacklist. This came after the Ministry of Commerce initiated an investigation into the company in September for allegedly refusing to source cotton from the Xinjiang region, which has become infamous for its Uyghur internment camps. The declaration was made just a few days after Trump imposed a 10% tariff on imports from China. It was also accompanied by a number of other retaliatory actions against the United States, such as additional tariffs on energy imports and agricultural equipment.
Michael Kaye, a partner at Squire Patton Boggs and an expert in international trade law with over 30 years of experience, stated, “There is a tit-for-tat trade war going on, and [China] wants to show the United States that it is going to take action to hurt either big U.S. companies or companies with significant interests in the U.S.” “They are being used as an example. … I think that [China] wanted to choose someone who was well-known, and that is why they made their selection.
Now that PVH is on the unreliable enterprises list, China could force the company to shut down the dozens of outlets that it runs in the region and ban it from selling its items to Chinese consumers online, said Kaye. Kaye further mentioned that the workforce, especially those who have established their lives in China, may be successfully deported and sent back home.
It is uncertain whether China will attempt to take action against PVH in Hong Kong, which is an independent region and the location of the company’s Asia-Pacific headquarters. Kaye stated that in 2020, China approved a rule that allowed it broader authority to execute national laws in Hong Kong, especially when it comes to regulations that pertain to national security. This might include the unreliable entities list.
The corporation seems to be conducting business as usual in China as of Thursday morning, Eastern Time.
China might potentially prevent PVH from manufacturing in the region completely, which would require it to relocate production to other countries and make it difficult for the company to meet client requests.
It is uncertain what specific actions China will take, or whether the Trump administration will attempt to persuade China not to impose penalties on the corporation.
PVH expressed its “surprise and deep disappointment” upon learning of the Chinese Ministry of Commerce’s decision, according to a statement.
PVH has been operating in China for 20 years and is happy to serve its customers. As a matter of policy, PVH strictly complies with all relevant laws and regulations and operates in accordance with established industry standards and practices. The company stated, “We will continue to work with the appropriate authorities and are hopeful for a positive outcome.”
In 2023, China accounted for 6% of PVH’s sales and 16% of its earnings before interest and taxes. However, the company is more dependent on China for manufacturing, which poses a greater danger to its business. According to a report that was released in December, PVH has more factories and suppliers in China than in any other location, which accounts for around 18% of its production.
Neil Saunders, who is the managing director of GlobalData and a retail analyst, stated, “This has the potential to be very, very disruptive for PVH.” “They would definitely have to work quickly to secure additional capacity. Of fact, they would eventually be able to accomplish so, but the two problems are that, because many supply chains operate on a just-in-time basis, they would likely discover that they had run out of inventory while they were making the switch. The other problem, of course, is quality.
According to Saunders, PVH has been doing business in China for almost 20 years. The company collaborates with suppliers and factories in more than 30 different countries, but the high-end products it produces can be challenging to create in other locations due to the degree of talent required.
“Although you can change manufacturing capacity relatively easily, it is not as simple to ensure the quality and guarantee the production processes.” Saunders stated, “It takes time to learn those things.” “PVH has been doing business in China for a long time, so the country has the ability and the skills to do so.” A other country and a different production site may not have those talents right now.
Additionally, PVH has seen China as a market with development potential, but it will now need to find new ways to boost sales and profits as demand for its high-end dresses, intimate apparel, and sweaters declines.
The list of untrustworthy entities in China is a relatively recent rule, and analysts claim that it is intentionally unclear. The government has a lot of freedom to take action against PVH, but it is yet uncertain what actions it will take. Kaye stated that guidance is usually provided within a few days of a company being placed on the blacklist.
Kaye stated that the likelihood of China adding PVH to the list and taking no action against the company is “very slim” since the government will want to prevent the perception that it is backing down. China is more likely to use PVH as a bargaining chip when negotiating with Trump. They will also use it as an example to demonstrate the ability they have to inflict pain on other U.S. corporations who have significant operations and client bases in China, such as Nike, Apple, General Motors, Starbucks, and others.
“[PVH] has a type of sword of Damocles hanging over its head, and that is precisely what this is, because this isn’t actually about PVH at all. Saunders stated, “This is about PVH being caught in the spat between China and the U.S.” China is using PVH as an example to demonstrate that if tariffs are implemented and other restrictions are placed on China, it will be able to make it difficult for American companies to operate in the nation. This is the main point of the matter.
Source : CNBC news
