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Business & Financial
Robert S. Reichard, Economics Editor

Greater Trade Woes

Robert S. Reichard, Economics Editor

T he growing flood of textile and apparel imports from China still shows no sign of subsiding. Preliminary first-quarter 2005 US trade results suggest incoming shipments of these products jumped a resounding 62 percent on a square yards basis when compared to year-earlier levels. And in some product lines (primarily those previously restrained by the recently ended quota system), the increases were a lot larger than that.

New Department of Commerce (DOC) data show imports of Chinese-made cotton knit shirtings and blouses were up 1,250 percent over the year-earlier period; cotton trousers, 1,500 percent; and man-made fiber underwear, 300 percent. Huge increases also are confirmed by new Chinese statistics.

According to one estimate, China’s textile sales to the United States almost quadrupled over the last few months. Major blame is put on the aforementioned demise of quotas and the vastly undervalued Chinese currency (the yuan), which continues to keep China’s asking prices a lot lower than international market forces would indicate.


Chinese Investment Grows

Also lending impetus to the spiraling US textile and apparel trade deficit is the shift of US-owned production away from the United States and towards Chinese mainland facilities. Firms either starting or expanding their Chinese presence include such textile manufacturers as INVISTA™ Inc., Wilmington, Del.; Malden Mills Industries Inc., Lawrence, Mass.; and W.L. Gore & Associates Inc., Newark, Del.

Labor costs are a major attraction. But there are other factors, too. The installation of new, highly productive machinery and an increasingly sophisticated Chinese infrastructure also play key roles.

In any event, US and foreign investment in China’s textile industry has been going through the roof — having nearly quadrupled over the 1999-2003 period. This trend should persist — especially now that Beijing is allowing foreign-owned companies to set up wholly owned operations. This is in sharp contrast to the joint-venture-with-local-partner approach that had prevailed previously.

The Backlash

All the above means the increasing likelihood of new government moves to stem the tide. Several options are available to help correct the lopsided textile and apparel trade balance. One involves stepped-up pressure — both bilateral and multilateral — to revalue the yuan. A coalition of senators supports legislation to impose a 27.5-percent tariff on all Chinese products entering the country if Beijing fails to raise its currency value.

Another approach is the threat of increased use of US trade laws to slow the import flood. The DOC is initiating an investigation into the need to reimpose trade quotas on China, and the US textile industry is filing petitions to broaden the range of products potentially subject to such import curbs.

Beijing action — imposing sharply higher tariffs on its exports — also could help. So could proposed moves setting up minimum pricing programs and a self-restraint system mandating individual company export volumes.

Domestic Markets Feel The Pinch

Meantime, the import spurt is beginning to have a fairly negative effect on domestic textile activity.

At last report, mill output was running about 1.7 percent under year-ago levels. On the shipment level, mill sales of basic mill products over the latest month were about even with a year ago in current dollar terms; but if you factor in the 2.5-percent increase in prices over this period, the real or physical volume of these sales was probably off by a similar 2.5 percent.

On the more highly fabricated textile product level, a 0.5-percent increase in dollar sales translates into a 3.5-percent decline when the more than 4-percent price boost over the period is factored in.

Domestic employment also is taking a hit. In the basic mill sector, the number of workers is down 5.5 percent vis-à-vis year-ago levels. On the domestic apparel level, latest job levels are running more than 10 percent under year-earlier readings.

Given all this, it’s not surprising that more than 10 textile and apparel plants have already been shuttered this year — with many more such closings likely before the year is out.

May 2005

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