Capitol
Hill Uptight About China
Textile imports from China totaled $360 million in March, up 39.3 percent
from the same month last year, according to the China Chamber of Commerce
for Imports and Exports of textiles. Imports of apparel from China rose 48.8%
to $740 million during the same period. For the entire first quarter of 2005,
we imported $22.4 billion in Chinese textiles, a 19.1 percent increase over
first quarter 2004. Imports of yarn, fabric and products grew 24.8 percent
and that of clothes by 15.9 percent, according to the Chinese Ministry of
Commerce.
So what gives? Why the huge increase?
Well, it's not because of currency. It's because earlier this year, a system
of import quotas on wearing apparel was lifted, and for the first time in
almost fifty years we had "free trade" in wearing apparel.
A little further explanation is merited:
A quota as you may recall, is a restriction that limits the absolute number
of quantity of a particular commodity which may be imported into a country.
For many decades the United States has maintained these quantitative restrictions
or quotas on the amount of wearing apparel that can be imported into the United
States. These quotas were removed in January as a result of a treaty negotiated
by the United States more than ten years ago.
The removal of quotas is great for consumers, because it allows American clothing
retailers to shop where ever in the world they can get the best value. Not
too surprising, China's business is booming. This is a reflection of China's
superior efficiency in producing these items, the high quality of the Chinese
product and high consumer demand in the United States that cannot be met by
U.S. production.
This increase in imports was completely anticipated. The U.S. textile and
apparel industry was given ten years to prepare for the quota phase-out, yet
they spent this time lobbying for further protection rather than making the
reforms needed to be competitive.
Now that the quotas are gone, however, U.S. textile manufactures (the industry
that makes cloth and yarn, not the industry that makes clothing) is trying
to limit the amount of wearing apparel that can be imported under a separate
provision negotiated between the United States and China at the time of China's
accession to the World Trade Organization. This so-called "special safeguard"
provision allows quotas to be re-imposed on certain items at the request of
the U.S. industry if the government deems the domestic market to have been
disrupted by imports of these items. U.S. textile manufacturers filed petitions
for safeguard quotas on 12 product categories, among which include cotton
trousers and cotton knit shirts.
Now the interesting thing about these petitions is that they were filed not
by the industry that makes clothing, but by the industry that makes fabric
and yarn. This industry, instead of trying to compete globally by selling
their products to producers around the world, would rather shut down the importation
of finished products in the hope that somehow apparel manufacturing will return
to the United States and they won't have to actually try to export their products.
Indeed, U.S. apparel brand names are uniformly opposed to further quota limits
on imports, since most brand-named apparel is manufactured outside the United
States.
The 12 categories under dispute represent 1.9 billion in Chinese imports.
No small potatoes for American consumers. On May 15, our government agreed
to impose import caps on cotton trousers, underwear and cotton knit shirts
and blouses from China. These categories represent the bulk of clothing imports
from China. According to Laura E. Jones, Executive Director of the U.S. Association
of Importers of Textiles and Apparel, "…the only result of this
action will be harm to U.S. consumers and to U.S. importers and retailers
who are trying to provide Americans with the clothes they want, at the right
quantity and the right price." These new quotas will go into effect before
the end of May, so if you want to avoid price hikes, do your shopping now!
Another problem the U.S. Congress has with China is that it has pegged its
currency to the dollar in such a way that prices of Chinese goods are artificially
low, causing American importers to buy products from China rather than elsewhere.
This is a boon to American consumers but makes it difficult for American producers
to compete. President Bush has pressured the Chinese government to float its
currency so that prices are a true reflection of worth relative to other currencies.
The Chinese have repeatedly said that they will do so, but have not yet taken
steps. Congress has grown increasingly dissatisfied with China's foot-dragging
and with the Administration's reluctance to use any means other than diplomacy
to force China to act. In the end, China will adjust its currency somewhat,
but it is unlikely to be enough to slow down its exports.
To counter the effect of increased imports from China representatives in Congress
have introduced several bills that would restrict imports by imposing additional
tariffs. A tariff is a tax collected at the border and eventually passed along
to the retail consumer. In order to avoid American tariffs on its exports,
China is now making noises about imposing its own export tax on its goods
- as much as 50 cents per item. A Chinese export tax is even worse than an
American import tax. Chinese exporters will pay the 50 cents per item tax
to the Chinese treasury, but will then mark up the price of the item to recover
their cost. So, not only will the export tax drive up the cost of goods at
American consumer expense, but the tax revenue will go to China's treasury
rather than our own.
Click here to read a detailed description
of the legislation Congress is proposing to hinder Chinese imports.