Peru’s wool and silk textile industry has fallen by nearly a third since the start of the year, with mills facing shutdowns as the country faces an international trade slowdown, according to a new study by the Peruvian textile industry and international textile trade groups.

The loss of production, and the sharp decline in prices, has forced many mills to shut down, leaving thousands of workers unemployed, said Alejandro de Jesús, co-founder and director of the Peru textile production and textile industry in a report to the Perú government published on Wednesday.

“This has created a death spiral in the industry, and this has led to the demise of some mills,” de Jesu said.

“We are facing the end of the textile production in Peru.”

Peru’s textile exports are worth around $2 billion ($2.6 billion) annually and are one of the biggest foreign earnings for the country, accounting for around 5% of GDP.

The textile industry suffered the biggest loss in 2015, when mills shut down and the government decided to shut them down, according the study.

“At the same time, many other mills are also shutting down, because of the import competition,” de Guises told Business Insider.

“These mills are all located in a few places in the country and many of them have gone into bankruptcy.”

The industry suffered losses of about 10% of its output in 2015 and has seen its production decline by nearly 20% since the end in 2014, according De Jesu’s report.

The decline has been compounded by the decline in international trade and demand for the fabrics.

In 2016, Peru exported about $6 billion in textile exports, according its National Institute of Statistics and Statistics, with imports up by more than 50% over 2015. 

“The import demand is very low, and it has been the case for many years,” de Jesuit said.

The Peruvian government is considering an import ban on imports from North America and Europe, he added.

“If this trend continues, we will be in trouble in the next few years.”

The textile manufacturing sector, which employs about 2.3 million people, is in the midst of a trade dispute with Japan and the European Union over tariffs on textile products. 

De Jesu also cited an increasing trend in the textile industry of the developing world where demand for its products is increasing.

“For example, there is an increase in the demand of textile production by the developing countries, because their needs are growing, as well as the demand for their products from other countries,” he said.

De Jesúos, a member of the Confederation of the Mexican Industry, said he believes that Peru is facing a “death spiral” because of global economic trends, including China’s recent slowdown.

The study, titled “Wool and Silk Trade: The Death Spiral or a Death Trap?” also found that the industry had become more vulnerable due to the weakening of global demand and the trade barriers it faces.

“The trade barriers have been created in order to protect a certain number of producers from foreign competition, which is a situation we have been in for the last 30 years,” said de Jesuy.

“When this situation has reached a critical point, it leads to the death spiral, because there is no alternative for the mills.”

De Jesuy also highlighted the lack of transparency surrounding textile production, which was largely obscured by the trade and tariff policies.

“Wool mills are the ones that are responsible for the production of the material, which has a very long and complex history,” he told Business Independent.

“All mills are obliged to have records, so that people know what they are doing and why.”

But the production records are not kept, they are not public, so there is not a public record of what the mills are producing.

“De Guises added that the lack and obfuscation around the trade policy in Peru has left the country with a “total lack of information about the nature and production of our textile products.””

There is a lot of confusion and we are living in a death trap,” he added, referring to the “death trap” of a textile industry that has been struggling in Peru’s economic climate since the early 1990s.

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