The expansion of the U.S. cattle herd, which began in 2014, has appeared to level off, based on the latest data available from the U.S. Department of Agriculture.  This can be seen in the higher number of female cattle (cows and heifers) in the slaughter ratios toward the end of 2019, continuing a trend from the previous year, suggesting a slowdown in growth is imminent. Though herd growth has likely leveled off, slaughter levels are expected to slow only slightly in the first half of 2020, yielding an adequate supply of hides available for the market.

More important in the eyes of many U.S. hides and skins suppliers, though, is the global leather demand situation, and the rise of synthetic products as alternatives to leather.  The leather industry in general has experienced an extremely tough market for the last several years, which will likely continue in 2020.  Plastic synthetic alternatives that look like leather, but are not real leather, have taken significant market share away from the material in consumer product areas such as footwear and automobile upholstery.  The situation is so dire that some lower quality hides and skins are being composted and destroyed rather than processed into leather – a trend that will continue in 2020.

Industry efforts, however, are already underway to combat misinformation about leather.  One such effort, “Real Leather. Stay Different.,” celebrates the versatility, beauty, sustainability, and durability of U.S. leather, while simultaneously encouraging the use and purchase of real leather over synthetics by engaging brands, retailers, and consumers.  

Assessing the situation in 2020 would be incomplete without considering trade issues.  In 2018, the Trump Administration levied several rounds of tariffs on imported goods from China, inviting retaliation from the Chinese and sparking a tit-for-tat trade war between the world’s two largest economies. The tariffs have not spared the hides, skins, and leather sectors, despite diligent efforts from industries in both countries.

Currently, most U.S. hides are subject to an additional 5% tariff going into China, and likewise many Chinese leather products such as sofa upholstery and small leather goods are targeted for an additional 25% duty in the U.S. Fortunately, most footwear and other major consumer products have not faced additional tariff increases, as originally planned.  These goods avoided a proposed tariff increase scheduled to take effect December 15, 2019, after the U.S. and China announced the two countries reached a phase one trade agreement, which entered into force on February 14, 2020. 

Although the phase one U.S.-China agreement did not remove retaliatory tariffs in place, China initiated, on March 2, 2020, a tariff exclusion process covering nearly 700 U.S. imports, including raw cattle hides larger than 16 kg (HS Code 41015019), which represent the majority of U.S. hides exports to China.  At the time of this writing, many Chinese tanners have applied for, and have received, tariff exemptions on these imports, which could provide much-needed relief for the U.S. hide and leather industry.     

One complicating factor this year is the Covid-19 pandemic that is placing pressure on global supply chains and hampering trade, particularly with China, but also with other parts of Asia and Europe.  It is difficult to predict the exact economic impact of the virus, but it is likely to be significant, considering labor shortages recorded at ports and in manufacturing facilities abroad, compounded by an observed decline in retail traffic both globally and in the U.S.  As of March 2020, the number of U.S. cases of Covid-19 continues to rise, and a growing number of states have implemented policies that require residents to stay home, thereby impacting business operations for many industries, including certain companies in the hide, skin and leather industry.  The long-term implications of these measures remain unclear, but, for now, trade continues to move, though that situation could change if ports are forced to shut down, or if container availability challenges and congestion issues accelerate.