On both sides of the Atlantic, the rhetoric about trade with China is intensifying. In Washington, U.S. Trade Representative nominee Rob Portman promised Congress on Apr. 21 he will take ``a tougher approach'' with Beijing than his predecessors. European Union Trade Commissioner Peter Mandelson declared on Apr. 24 that Europe is facing ``a ruinous surge'' of Chinese imports. French President Jacques Chirac called on Apr. 26 for more regulation of trade with China.
The immediate issue: Booming Chinese sales of items such as underwear, trousers, blouses, and shirts in both markets. Since quotas on clothing and textiles were removed worldwide on Jan. 1 after a 10-year phase-out, Chinese textile and apparel exports to the U.S. increased 62.5% overall in the first quarter of 2005, vs. the first quarter of 2004, and in some some categories by 1,500% in a single month. China now controls 17% of the U.S. clothing market, up from 12% in December. The EU says imports of Chinese textiles in the first quarter rose anywhere from 51% to 534%, depending on the item. The result is an outcry from U.S. and European manufacturers and a rush to reimpose quotas on Chinese textiles and clothing within months. France has asked for emergency curbs sooner.
The irony is that even if new quotas are imposed, they are unlikely to provide relief for the U.S. and European industries. According to rules that China agreed to when it joined the World Trade Organization in 2001, such ``safeguard'' measures can last only until the beginning of 2008. China would still be allowed to increase its textile exports to the U.S. and Europe during that period by 7.5% a year. Moreover, says Kenneth Chan, spokesman for the Federation of Hong Kong Garment Manufacturers, mainland makers could revert to their practice of skirting quotas by having third countries ship Chinese goods.
Even if China loses some of its new export business, that doesn't mean work will flow back to Europe and the U.S. That's because China's low-wage competitors are gearing up to grab orders if buyers shift from China. Textile production ``will still leave the U.S. and go to India and Pakistan,'' says Cao Xinyu, vice-chairman of the China Chamber of Commerce for Import & Export of Textiles. Pakistan imported $2.2 billion in machinery over the last five years to modernize its textile industry.
Waiting in the Wings
Aziz Memon, chairman of Karachi-based King's Group, a big knitware exporter, expects Pakistan's post-quota textile exports to grow by $1 billion -- or 12% -- a year. ``India and Pakistan will be the [main] gainers from China's losses,'' he says. In India, Rajesh Mandawewala, CEO of Welspun India Ltd., the nation's No. 3 textile maker, says new factories coming on line should boost Indian textile exports from $15 billion last year to $50 billion in 2010.
Wal-Mart Stores Inc., which buys an estimated $350 million in clothing from India every year, is expected to double its purchases in two years, Indian experts say. ``Slapping quotas on China won't make the U.S. [clothing] industry more competitive,'' says Erik O. Autor, a trade lawyer with the National Retail Federation in Washington. No matter. The outcry over job losses in the U.S. and Europe makes action against China inevitable, however futile a gesture it proves.Business Week
