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Washington Outlook Archive
James A. Morrissey, Washington Correspondent

Trade War With China?

James A. Morrissey, Washington Correspondent

T here is a mini trade war brewing between the United States and China, and textiles and apparel are right in the middle of it. As the overall US trade deficit with China heads toward another annual record level, and textiles are a big part of it, members of Congress, the Bush administration, trade officials, organized labor and a number of import-impacted industries are showing increasing concern over trade with China. But the Chinese are charging that much of the problem stems from structural deficiencies in the US economy, and they don’t want to take all the blame.

Issues other than dollars and job losses are involved, with reports of Chinese tainted food, unsafe toys, tires, toothpaste and other products. These have resulted in a rash of calls for more government oversight and restrictions on Chinese imports. The Chinese, on the other hand, are fighting back. They retaliated by blocking shipments of chicken feet, pork ribs and other food products from major US companies. This international food fight is not likely to upset US/China relations at this point, but special interests often use product safety concerns to block imports. US textile manufacturers now are looking at the flammability of Chinese textile and apparel imports.

The flash point is likely to be the Chinese currency issue. Textiles and other manufacturers contend China’s refusal to let its currency float amounts to an unfair trade practice that gives it an advantage in international trade. While both the Bush administration and the Chinese government admit the currency under-valuation is a problem, the Chinese want to address it in their own time and in their own way. But Congress is getting impatient. Pending legislation in both the House and Senate would force the Secretary of the Treasury to declare China a currency manipulator and take actions ranging from filing complaints with the World Trade Organization and the World Bank to subjecting currency manipulation to punitive tariffs under US anti-dumping and countervailing laws.

Bush administration trade officials are strongly opposed to the legislation, saying “ direct robust discussions” with Chinese officials are the way to go.

Chinese officials were upset when the US Department of Commerce announced that for the first time it would use its anti-subsidy countervailing duty laws in a case involving paper products from China. Textile industry officials quickly said they were looking at the possibility of similar actions against subsidized textile and apparel imports. Textile industry lobbyists also support legislation that would further nail down the right to use anti-subsidy laws against state-run economies such as China and Vietnam. Textile importers are strongly opposed to such legislation, saying it would be anti-consumer and would create uncertainty in their overseas sourcing.

Trade War Between Congress And The Administration?

A trade war also is brewing between the Bush administration and Congress. It all started in June, when Congress derailed the administration’s free trade agenda by refusing to renew the president’s trade promotion authority, also known as fast track. Four agreements — with Peru, Panama, Colombia and South Korea — were negotiated in time to qualify for fast track treatment by Congress. It was felt the pacts with Peru and Panama would have clear sailing, Colombia would be a little more difficult, and South Korea faced some major hurdles in Congress.

Optimism with regard to the FTAs grew out of a May 10 agreement between Bush administration trade officials and the Democratic leadership. A key element in the bipartisan policy statement was a provision that FTA participating nations would agree to enforce fair labor standards and environmental preservation. Problems developed with the Peruvian and Colombian agreements when House Democratic leadership said these standards should be met before Congress deals with them, and congressional consideration was put on hold. However, problems with Peru appear to be resolved.

Meanwhile, Rep. Sander M. Levin, D-Mich., who as chairman of the House Ways and Means Committee’s Trade Subcommittee is one of the most powerful members of Congress in the area of international trade, has sharply criticized the administration’s trade policies, claiming too much emphasis has been placed on exports and not enough on controlling imports.

Despite objections from the administration, legislation is moving through Congress that would punish China for what sponsors of the legislation say is China’s illegal manipulation of its currency in order to gain advantages in international trade. Chances of passage are pretty good.

There is no doubt trade with China will enjoy high priority in Congress in the next few months.

Industry Launches Major Effort With The Military

US companies that supply textiles and apparel to the military are conducting a major effort to improve military procurement practices in order to ensure they will be able to continue meeting the immediate and longer-range needs of the armed forces. The program is spearheaded by the National Textile Association, the American Apparel and Footwear Association, the Parachute Industry Association and Clemson University. Other organizations are expected to come on board soon.

Although the US industry has a long history of meeting the needs of the military in times of peace and war, a series of problems arose from changing needs following 9/11 and the war in Iraq. Product complexity increased as services changed from standard to unique uniform systems and new technologies. Many new customers appeared, and the existing system simply was just not up to responding quickly and efficiently enough to what has become a market approaching $2 billion in value.

After several meetings between the staff and top brass in the Defense Logistics Agency and textile and apparel industry representatives, there are signs of progress toward streamlining some processes and strengthening the industry’s ability to respond. Joint efforts are underway to address several concerns.

Problems resulting from price changes when costs unexpectedly go up or down could be addressed by grouping like products and tracing the Producer Price Indexes, which would enable producers to recover unexpected costs, and the government could benefit from cost reductions.

Reducing the risks of fluctuations in maximum and minimum orders could overcome the problem of dedicating too much or too little capacity that may or may not be used.

Current problems with standardized color and shadings of textiles could be resolved by using techniques similar to those used in private industry.

Agreement may be reached on better methods for ensuring prompt payments for military orders. Consideration is being given to employing better means for forecasting needs, by tracing the past history of the relationship between a forecast and actual purchases.

It also has been suggested that industry/military teams continually monitor supply chain performance, changes and other developments.

Dan Pezold, senior vice president of Textiles, and chairman of the National Textile Association’s Government Textiles Committee, believes the two-year effort is paying dividends, and he is optimistic that what he calls the “unnecessary peaks and valleys” of military procurement can be ironed out. Pezold believes the original effort to educate military procurement officials about the complexities of the supply chain has been successful, effective communications have been established and there is a much better understanding of how to address problems. “We have outlined what needs to be done,” he says, “and now we just have to do it.”

September/October 2007