The US has another trade spat going on — and it's over old clothes

  • The U.S.' notice period for the east African country of Rwanda to reduce its tariff on imported used clothing — or face the consequences — expired on Monday.
  • Rwanda risks losing the economic benefits of its membership of the U.S.' African Growth and Opportunity Act, which permits duty-free U.S. imports on 6,500 goods.
  • In July 2016 Rwanda, along with Kenya, Tanzania and Uganda, hiked tariffs on imported second-hand garments, fearing that cheap clothes from abroad were threatening domestic manufacturing.
Shoppers at Nyamirambo Market in the Rwandan capital of Kigali sift through piles of used clothing on May 10, 2018.
The Washington Post via Getty Images
Shoppers at Nyamirambo Market in the Rwandan capital of Kigali sift through piles of used clothing on May 10, 2018.

While the U.S.' tempestuous trade relationship with China has dominated the news, the world's largest economy is also harboring a disagreement with the landlocked African country of Rwanda over an unusual commodity — second-hand clothes.

The U.S.' 60-day notice period for Rwanda to reduce its tariff on imported used clothing — or face the consequences — expired on Monday. Details on what will happen next to an industry which creates tens of thousands of jobs in both countries are hazy.

In July 2016, the east African countries of Rwanda, Kenya, Tanzania and Uganda hiked tariffs on imported second-hand garments, citing fears that cheap clothes from abroad were threatening their domestic manufacturing industries. Rwanda reportedly increased duties by 20 cents to $2.50 per kilogram.

Discussion among the east African countries of banning imports completely by 2019 has been on the cards as far back as 2015.

But in March last year, the matter was alerted to the Office of the United States Trade Representative by the Secondary Materials and Recycled Textiles Association, a U.S.-based group representing companies that gather and sell on the U.S.' old clothes. It maintained that 40,000 U.S. jobs would be negatively impacted, as well as tens of thousands of jobs in the east African countries themselves, should an embargo be put in place.

Kenya, Tanzania and Uganda have since backed away from the tax hikes following a U.S. threat to limit the benefits from their membership of the African Growth and Opportunity Act (AGOA) — the U.S.' main trade legislation for Africa which permits duty-free U.S. imports on 6,500 goods.

"Rwanda is not making sufficient progress toward the elimination of barriers to U.S. trade and investment, and therefore is out of compliance with eligibility requirements" of the act, said a statement on the U.S. Trade Representative website.

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The U.S. used clothing business is worth nearly $1 billion, according to Reuters. AGOA means that goods from international brands that are manufactured in Africa can be exported to the U.S. duty free. Since the law was implemented in 2000, African exports to the U.S. almost quadrupled to over $1 billion, Reuters reported.

But Rwanda has refused to back down from the fight. Despite membership of the U.S. act, we "have to do other things, we have to grow and establish our industries," Rwandan President Paul Kagame is reported to have said in June 2017.

Ordinary Rwandans have voiced concerns about expensive clothing hurting the poor as a consequence of increased import duties.

In 2017, Rwanda's trade deficit with the U.S. was $22.4 million, according to AGOA.info, an online information resource about the act.

Both the U.S. Trade Representative and Rwandan government bodies were not immediately available for comment when contacted by CNBC.

Rwanda's economy is expected to grow 7.2 percent this year, well above the emerging market average of 4.9 percent, according to the International Monetary Fund. The country is ranked as the second easiest place to do business in Africa by the World Bank. It hopes that its clothing industry can create 25,000 jobs by 2020, Reuters reported.

A shop at Nyamirambo Market in Rwanda's capital Kigali displays used clothing from around the world on May 10, 2018.
The Washington Post via Getty Images
A shop at Nyamirambo Market in Rwanda's capital Kigali displays used clothing from around the world on May 10, 2018.