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Business & Financial

Import Problems

Robert S. Reichard, Economics Editor

F oreign competition remains a king-sized head-ache, despite the fact that mills have staged a modest recovery from recent recession lows. Again, China is the chief culprit, as U.S. combined imports of textile and apparel products from that nation have been running close to 30-percent above last year's already high levels — far above comparable gains noted for all other nations. One result: Chinese incoming shipments now account for nearly half of all U.S. imports of these products. With such numbers, it's easy to understand increasing industry and Washington pressure to stem the tide — primarily by insisting that Beijing speed up its plans to raise the value of its currency, the yuan. One approach aimed at attaining this goal is spelled out in a recently passed House bill calling for imposition of tariffs on any nation that undervalues its currency. But it's questionable just how effective the bill will be, primarily because it permits but does not mandate punitive duty levies. It's also worth noting that Senate passage of the bill is still pretty iffy.

Then, too, Washington would prefer, if possible, to avoid a major confrontation with Beijing, primarily because the United States depends on China to continue lending it billions of dollars to finance the trade deficit. China, too, would probably like to avoid a serious squabble, as it badly needs U.S. purchases to keep its factories humming. A much more desirable strategy, say most trade officials, is a multi-nation approach that would involve all the other nations in Europe and Asia that are being adversely affected
by an undervalued yuan.

BFgraph

Another Trade Imponderable
Even if China agreed to a sizeable yuan increase, there's no guarantee the move would result in prices high enough to slow still-surging U.S. imports. Thus, while the yuan rose more than 20 percent over 2005-08, U.S. imports of textiles and apparel over the same time span continued to increase at a rapid pace, in large part because Chinese producers were able to absorb the costs of the yuan revaluation through a combination of productivity gains, acceptance of lower profit margins and use of other trade subsidies. Some of these same factors could still help this time around. Also, consider that many products thought of as being made in China are really only assembled there. A stronger yuan only affects the portion of work done in that nation. It's also likely that if Chinese prices do rise significantly, U.S. sourcing could very well shift to other low-wage countries such as Vietnam, India, Pakistan, Indonesia and Bangladesh.

This might cut down on Chinese imports, but it would do little to correct the overall negative U.S. trade balance. Bottom line: Don't expect miracles — and certainly no recouping of U.S. market losses of recent years. If all goes well, a modest U.S. import slowdown would be enough to keep U.S. domestic mills and factories operating at or near current levels over the next few years.

Other Near-term Positives
Another factor likely to help the U.S. industry over the next year or two is the expectation of continuing general business improvement. To be sure, the gross domestic product gains currently projected by Uncle Sam and most economists over this period are quite modest — in the 2- to 2.5-percent annual range. But this may seem to be enough to debunk lingering fears of a double-dip recession. More importantly, the expected increase, though small, should keep domestic mill and apparel demands on their currency recovery path. In any case, there's a lot more than wishful thinking behind this basically optimistic scenario. Some bright spots worth noting include rising export levels, improved business profits, somewhat lower consumer debt, improving net worth, and a leaner domestic auto industry that's finally becoming profitable again. Still another upbeat sign: new projections calling for a fairly good 2010 holiday season. The National Retail Federation is now forecasting a 2.3-percent rise - the biggest gain in three years.

More important, apparel is high on the list of expected purchases. Thus, more than half of surveyed women responding to a recent Cotton Incorporated study say they plan to buy clothes or apparel store gift cards this holiday season. As such, it now seems certain that U.S. textile and apparel industries both will end up in the plus column when final 2010 figures are totaled up.

November/December 2010

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