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Business & Financial
Robert S. Reichard, Economics Editor

A Changing Business Climate

Robert S. Reichard, Economics Editor

C an a serious business downturn be avoided? That's the biggest question on the minds of textile and apparel executives today. Make no mistake about it, the answer is crucial given the close long-term relationship between how these industries fare and general economic activity. To be sure, no one knows for certain what the next few quarters will bring. But Textile World remains cautiously optimistic - feeling recent government moves aimed at priming the pump will help prevent any really sharp downturn. Clearly, the recent substantial interest rate reductions should make borrowing both easier and considerably less expensive. And more borrowing almost always results in more activity. Equally encouraging is the $100 billion-plus tax rebate recently approved by Congress - money that will flow directly into consumers' pockets.

Evaluating New Moves

To be sure, families won't receive this cash windfall before May. Nevertheless, just the promise of the money should keep near-term consumer expenditures from dipping into negative territory - and in the process also keep overall gross domestic product (GDP) at or only slightly under present levels during the second quarter. That scenario is a lot better than the one being painted by some of today's more bearish analysts. Beyond midyear, most economists believe the tax rebate, when combined with lower interest rates and new capital spending incentives, will help turn things around - adding between 1.0 and 1.5 percentage points onto second-half economic growth. If true, the year as a whole could still end up sporting a small 1.5- to 2-percent overall GDP advance. Also on a reassuring note: The National Retail Federation, despite all the negative talk, feels overall US retail sales for the year will still manage to eke out a 5.5-percent gain. This won't prevent further erosion in domestic textile and apparel activity, but for the most part, any further slippage will reflect the still-potent impact of import competition rather than any cyclical decline in demand for these products.

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China Is The Problem

Most of these textile and apparel import headaches are attributable only to China. And this is most clearly highlighted in the National Council of Textile Organizations' recent annual economic and trade review. Eye-opening findings: Imports of textile and apparel products from China were up 15 percent on a square-meter-equivalents basis last year, in sharp contrast to the drop in US textile imports from many other countries. This continuing Chinese influx has pushed up the United States' textile/apparel trade deficit with Beijing by 17 percent. Moreover, the fact that all remaining quotas on Chinese textiles are scheduled for elimination at the end of this year could make things even more difficult for US producers. If nothing is done on the quota issue, the United States could face as much as another $40 billion in potentially unrestrained imports from China.

A Blueprint For Success

Clearly, some kind of coordinated strategy will be needed to ensure adequate safeguards are placed on incoming Chinese shipments. The US/Beijing international trading field has to be leveled - and leveled soon. The United States should not wait for the Chinese to make all the moves. An increasingly rigorous and aggressive enforcement of existing trade rules would certainly be in order. But beyond this obvious step, Washington should begin showing a lot more willingness to follow through on anti-subsidy cases against China. Make no mistake about it, this is an area with plenty of potential, given the fact that China is now the world's largest subsidizer of internationally traded commodities. In the textile area alone, there are at least 63 documented areas of Beijing subsidization. Another important import-blocking tack: more US anti-dumping moves similar to those already used against Vietnam. Finally, there's a lot more that can be done to stop all the illegal transshipments of textile and apparel products. The tide can still be turned, but it will have to be done now, while there are still viable industries to save.

March/April 2008

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