2003 was a bad year for the US textiles industry - with domestic production hit by a 63 per cent increase in imports from China. The US textiles industry says the blame lies with China for producing cheaply and in volume. But all China is guilty of is accepting more orders from American retailers and fulfilling them at a good price and on time argues Paul French.

If you are following the attempt by the American Textile Manufacturers' Institute (ATMI) and other representatives of the US clothing industry to slap a trade ban on China you could be forgiven for thinking that Adam Smith, that eminent advocate of free market capitalism, would feel more at home in Beijing than Washington these days.

Now that 14 trade groups have demanded that President Bush institute protectionist measures against Chinese textile imports into the US their colours have been well and truly nailed to the mast. They want to stop China gaining access to the US and ultimately stop retailers purchasing where they can buy cheapest and force US consumers to pay more.

Before considering the motivations behind the demand that America's apparently weak textiles industry be protected from China let's consider for a moment what Smith, the doyen of American free market advocates and presumably someone all the signatories to the ATMI letter to President Bush are familiar with, had to say about import restraints.

This is Smith from his seminal book 'An Inquiry into the Nature and Causes of the Wealth of Nations': "By restraining, either by duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them. Thus the prohibition of importing either live cattle or salt provisions from foreign countries secures to the graziers of England the monopoly of the home market for butchers meat…the prohibition of the importation of foreign woollens is equally favourable to the woollen manufacturers."

The Wal-Mart store in Fuzhou

We can safely assume that Adam Smith would not have been on the side of the US textiles lobby that wrote to President Bush demanding barriers against Chinese imports.

Textiles in trouble
It is undoubtedly true that the US textile industry is in trouble. For a number of years now the volume of Chinese imports (and to a lesser extent Vietnamese, Cambodian and other Asian imports) has been growing rapidly. There are currently few quotas against these imports. The result has been that the industry in the US has lost jobs by the thousand and has gone into the red - losing almost US$200 million in the fourth quarter of 2002 alone.

China is still a powerful image to evoke in the US - a rising communist-led dragon often little understood in the American heartland where the ailing textile industry resides.

The US industry has been further hit by the rise of the dollar against Asian currencies and the falling costs of Asian yarn and fabric - by up to 40 per cent in some cases. However, while the American textile industry seeks to persuade the government that the enemy is 'Red' China and the answer is protectionism, in the current global economy many American industries could make the same weak case that they should be protected from competition.

The powerful textiles lobby has already been trying to force the Bush administration to impose limitations on free trade, though the White House has resisted this strategy so far.

2003 was a bad year for the US textiles industry - China's sales of textiles to the US rose by 63 per cent to US$3.15 billion. The blame lies with China for producing cheaply and in volume says the US textiles industry, but all China is guilty of is accepting more orders from American retailers and fulfilling them at a good price and on time.

Domestic political issue
The truth is that the argument about textiles is purely a domestic American political issue. It is noticeable that while the textile manufacturers have been lobbying hard there has been no support from America's retailers - an equally powerful lobby.

Why not? Well, it was mostly the retailers that spent that US$3.15 billion in China last year. American retailers are happy to buy at reduced prices allowing them to compete on the high street and in the mall, delivering ever better quality garments to American consumers at lower prices.

Cheaper Chinese-made clothing - including importation of mainstream goods that were once luxury items such a cashmere - has been one of the factors that despite 9-11, the War on Terror, Gulf War II and a slowing manufacturing economy has kept consumer confidence and spending high in the US and prevented full-blown recession.

You certainly won't find major retailers such as Wal-Mart complaining about China - last year the mega-tailer imported US$12 billion of goods (a high percentage of which were textile products) from China to the US. In addition Wal-Mart is also benefiting from the growth of China's consumer class with an expanding chain of stores in the PRC racking up sales - the firm's latest Sam's Club outlet opened last weekend in Beijing - Wal-Mart's 22nd store in China.

Who is to blame?
So if we assume that American retailers are not in favour of blocking Chinese imports, and that American consumers are enjoying low prices on clothing imported from China, then who is really against China's textile industry in the US?

The answer is the politicians - the Senators and Congressmen who represent those states, such as North Carolina, that largely comprise America's moribund and increasingly costly and uncompetitive textile industry. Those Senators and Congressmen got their jobs partly through support from the textile lobby and the unions. Those Senators and Congressmen will get re-elected and keep their jobs if they can force the President to provide some sort of drip feed for the textiles industry.

So far the textile lobby in America has been able to exert an influence on the politicians far in excess of the importance of the industry to the wider economy. Why? We're in that strange environment known as the Presidential election cycle.

Love them or hate them most people admit that President Bush and Zoellick are basically free traders at heart. However, we're now getting into the election cycle so the administration is looking for ways to both placate America's failing textiles industry while not alienating consumers who could see prices rise and ultimately threaten a consumer spending slowdown.

DKNY trainers on sale in China

This is why the textile lobby has the ability to exert an influence totally out of proportion to the industry's importance to the overall US economy - Bush wants votes.

Actually we've seen it all before and recent history gives us an indication of just how this latest spat over textiles may play out. Before the last mid-term congressional elections the bogeyman was once again China, though this time the issue was steel. The rusting US steel industry lobbied just as hard as the textiles gang, and due to the need for politicians to get elected Bush announced large-scale protectionist measures against foreign steel.

Once again the expanding and competitive Chinese and other foreign steel industries were portrayed as the cause of all the evils afflicting America. China was naturally indignant, as were the Europeans who were also accused of undermining American jobs and profits. However, once the elections were over Bush and his team quietly dropped, relaxed or withdrew most of the protectionist measures.

China-bashing
Now here we are again with struggling American industries and their hired politicians China-bashing again to try and find some way to resuscitate their sunset business through protectionism. This time round Bush may stand strong even despite the election cycle.

Expert Analysis

Retailing in China 2003 - Volume one - A Market Analysis
This report covers the retailing industry in the People's Republic of China, including the activities of all forms of retail outlets, and direct sales companies.

Bearing in mind the difficulty in obtaining reliable market data, Access Asia has therefore had to devise various methods to produce figures, in both volume and value terms, which make sense given the realities of the Chinese consumer economy and to which we are sufficiently confident to put our name. Find out more here.

 

America's economic and political situation is markedly different now than it was during the steel dispute. Many believe that the US needs China's help to bring the recalcitrant and stubborn nuclear North Koreans to the negotiating table to avert another war as well as Chinese support in the UN, while any actions against Chinese industry could lead to retaliation against American businesses in China.

US trade with China is continually growing and any sanctions by Beijing against major American investors in the PRC - GM, Ford, Motorola, Wal-Mart etc - would do more harm to American interests than the continuing and inevitable decline of America's textile industry.

So we can expect a lot of indignant bluster and political huffing and puffing in the next few months from the American textile lobby. The Bush administration may suggest some measures to placate them and then quietly forget them after Bush gets re-elected. Then China can get on with the job of expanding its textiles industry and securing more orders from American retailers eager to bring US consumers low prices.

In the meantime let's finish with another thought from Adam Smith that the ATMI seems to have missed: "That this monopoly of the home market frequently gives great encouragement to that particular species of industry which enjoys it, and frequently turns toward that employment a greater share of both the labour and stock of the society than would otherwise have gone to it, cannot be doubted. But whether it tends either to increase the general industry of the society, or to give it the most advantageous direction, is not, perhaps, altogether so evident."

Paul French is the Shanghai-based publishing director of Access Asia. To contact him e-mail: Paul@accessasia.co.uk