Amen in uniform: an Asheboro apparel maker thought a new contract would be the answer to its prayers. Now it's singing the GI blues.

Behind a mound of paperwork in his drab, gray office, Wallace Thompson shakes his head and sighs. Five days before Christmas, the president of Fox Apparel in Asheboro still can't feel the holiday spirit. His mind is too crowded with the ghosts of employees past. A year ago, Fox had more than 300; now, it has about 100. And there's really not enough work for those. "We're down to just four days a week now."

When he gets up to walk around the plant, his golden retriever, Elly May, uncurls from her perch on an old brown couch and follows. The buzz of sewing machines turning out trousers makes the soft-spoken Thompson hard to hear, but the din could be even louder. Fox's vice president of operations, Glenn Oakes, points to rows of silent sewing machines.

Thompson bemoans the state of apparel manufacturing in the United States since the North American Free Trade Agreement took effect in 1994. At 64, he has lost most of the hair on his head, and his face has been creased by time and the worries of nearly 40 years in the industry. But he says he can still look at himself in the mirror and honestly say he's done his best for his employees. "I had a few of them hug my neck and say, 'Thank you. I know you're trying.'"

They don't have to tell him his good intentions don't pay the bills. Though he bought little bags of gifts for them, Thompson knows their holidays won't be very happy. "I'm not giving them enough to put their kids through school and stuff. They're just living paycheck to paycheck."

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It's nothing new for apparel makers to complain about having to lay off workers or cut back hours. Between December 1993 and December 2006, the state lost 77% of its apparel-manufacturing jobs, mostly to technology improvements and low-cost imports. But Thompson's despair centers on a thornier issue: foreign-made U.S. Army uniforms. Despite winning a government contract to make combat trousers, Fox has had to let go workers. That, he says, is because the Army can't keep soldiers from buying cheap knockoffs. Some foreign-made uniforms, he claims, are even sold in stores on military bases.

To Thompson, who served in the Army in the mid-1960s, that seems like a betrayal of American workers and soldiers. "When I wore my uniform, I was proud of it. Back then, when you put on your uniform, it represented something. Now, you might be wearing a uniform made in China. How can you be a proud American soldier in a Chinese-made uniform? That just doesn't even make sense."

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He wants the Army to stop allowing soldiers to buy their own replacements, but there's no reason to think he'll get his way. Nor is it certain that foreign-made combat trousers are his real problem. Fox is more reliant on the military than most contractors--that's where it gets 98% of its revenue--so it feels the decline in orders more acutely. But it's not the only government-contracted apparel maker taking a hit. "This is hurting all of these companies," says Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. "People have seen their orders drop by 70% to 80%. They've gone back to the Department of Defense and said, 'We're going to go out of business.'"

When Fox got the contract two years ago, Thompson thought he had finally found a way to boost revenue and profits dramatically without having to worry about cut-rate foreign clothes. He and Oakes had launched the company to make blue jeans in 1979 as Randleman Manufacturing, after the city where it was based, and later changed the name. Before that, Thompson had studied engineering at East Carolina University in the early 1960s, briefly quit to work and went in the Army. After he got out, he earned a bachelor's in economics from Guilford College in Greensboro in 1969. He got a job as an engineer at Indian Head Hosiery, working in High Point and later Reidsville. By 1971, he was at Anvilbrand, which made jeans and other trousers in High Point. He met Oakes there.

They got the entrepreneurial itch at the right time. During the 1980s, Fox grossed about $7 million a year and had five plants that employed about 700 people. In the '90s, things took a turn for the worse. "Someone decided that NAFTA was the greatest thing since sex," Thompson says. "It was going to be the cure-all for Third World countries."

It turned out to be bad news for the U.S. apparel industry. Many manufacturers couldn't compete with cheap foreign goods and started closing mills. Fox did, too. In the late '90s, it was down to one plant, 50 employees and about $1 million a year in sales. "We had to reinvent ourselves," Thompson says. "We had to go out and borrow a lot of money and get modern equipment to make the labor come down. All that did was throw us further into debt, and the interest rates weren't very kind to us. The profit margin was shrinking such that you were paying more in interest than you were making in profits." More and more of his peers were going under. "There were times I'd wake up in cold sweat."

In 2002, Fox found work as a subcontractor for Selma, Ala.-based American Apparel. "We started slowly building our work force and got back up to about 98 people." Thompson and Oakes felt confident that things were getting better, that Fox was about to outgrow the space it occupied in Randleman. In 2003, they got a good deal on a 180,000-square-foot factory in Asheboro, eight miles away. Two years later, it got the Army contract. "We were very excited," Thompson says.

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It's no wonder. The deal with the federal Defense Supply Center in Philadelphia guaranteed $23 million the first year and held the potential for as much as $103 million over five years. His congressman, Howard Coble, the Greensboro Republican who co-chairs the Congressional Textile Caucus, issued a statement: "With so many textile and apparel manufacturing jobs being exported overseas, I am particularly proud that the U.S. Army will supply its men and women with uniforms produced right here in the 6th District."

Thompson hired more than 200 people to handle the extra work and spent $2.5 million on training and equipment to meet military standards, including state-of-the-art punch clocks, a government inspector station and new sewing machines. Things looked good. Piles of pants came off assembly lines, headed to the Defense Supply Center and then to bases. "The Army's projection was that they could not have enough uniforms for four years," Thompson recalls.

In February 2006, Coble trumpeted more good news: The Army had extended Fox's contract, "guaranteeing continued employment for about 300 employees at its Asheboro facility." But in August, the Defense Supply Center sent Thompson a letter saying the Army had about 2 million too many uniforms and was cutting its order by 25%. "They'd said they couldn't get enough uniforms, and then after only a year and a half, all of a sudden they have too many. Now, how can that be?" Two weeks later, the Defense Supply Center wrote to him that the Army was cutting back another 25%. "That's when I started really looking at this thing and thinking, 'Oh my God.'"

Army spokesmen couldn't give a reason for the decline, but another uniform contractor says it's part of a boom-and-bust cycle. The Army stocks up when it needs to and cuts orders when inventory builds. "These peaks and valleys hit our industry," says Jim Gibbons, CEO of National Industries for the Blind, an Alexandria, Va.-based nonprofit that manufactures government goods, including Army uniforms. "What we hope is that if one contract dries up, another one picks up."

Thompson doesn't have that luxury, and besides, he's convinced there's something else going on. "You don't have to have an economics degree to figure out that if the Army projected their need at X number of uniforms and they suddenly have 2 million too many, those soldiers are buying them somewhere else." When a soldier enlists, the Army supplies him four sets of uniforms for the first year of service--those come from contractors such as Fox--and gives him a yearly allowance ranging from $371 to $619 to replace lost or worn-out items.

In August, Thompson complained in a letter to Coble that soldiers were buying replacements manufactured overseas without American labor, fabric or components. This, he believes, violates the Berry Amendment, a measure Congress passed just before World War II that requires military uniforms be made with American products. But whether stores on military bases must sell only American-made replacement uniforms depends on whom you ask.

The Berry Amendment doesn't cover the Defense Department's Army & Air Force Exchange Service, which runs PX and military-clothing stores on bases, spokesman Judd Anstey says. But it uses domestic sources unless none are available. National Industries for the Blind also operates base stores. Its policy is to buy from domestic manufacturers, Gibbons says. Whether its stores are subject to the Berry Amendment, he adds, is open to interpretation.

Soldiers are encouraged to buy official gear, which has undergone testing to ensure it meets Army specifications. If a soldier is caught wearing a knockoff, he will be reprimanded, Army spokesman Dave Foster says. Even so, cash-strapped GIs are tempted by bargains. Foreign-made trousers, which are difficult to detect during routine inspections, are available in stores and on the Internet for as little as half the $35 price of a regulation pair.