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The Chinese Bogeyman in US Clothing

25 April, 2005, C.P. Chandrasekhar & Jayati Ghosh

On April 4, the US Department of Commerce succumbed to protectionist pressures and chose to launch investigations to check whether textile imports from China were disrupting US markets. US Commerce Secretary, Carlos Gutierrez, is reported to have said that the decision was the first step in a process to determine whether the US market for these products is being disrupted and whether China is playing a role in that disruption. The immediate excuse was evidence of a sharp rise in the quantum of imports of certain varieties of Chinese textiles into the US market, quota restrictions on which under the Multi-Fibre Agreement (MFA) were lifted as of January 1, 2005. As Table 1 indicates, import increases during the first quarter of the year in select categories that are controversial have varied from an excess of 250 per cent to as much as 1600 per cent. However, there is need for caution when quoting these figures, because they are growth rates computed on a base kept low by the MFA's quota regime.

Table 1: Increase in Imports of Specific Categories of Textiles: Jan-March 2005
     Category
Volume Growth (Percentage)
 
   
    Cotton Hosiery
1084
 
    Cotton Knit Shirts, MB
1003
 
    W/G Knit Blouse
1499
 
    Cotton Skirts
1102
 
    Cot.M/B Trousers
1492
 
    W/G Slacks, etc.
1612
 
    Cotton Underwear
408
 
    M-MF Underwear
260
 

Table 1 >> Click to Enlarge

But touting such figures, US industry associations have been accusing the Chinese of dumping to an extent that disrupts the US market and damages the domestic industry. In the event, they are demanding that the government should invoke a clause included in China's WTO accession conditions that permits the US government to restrict import growth to 7.5 per cent a year till 2008. The Bush government that has recently begun its second term has been quick to oblige, even though domestic political pressures are not as overwhelming.

There are, however, a number of reasons to hold that the US response is either alarmist or orchestrated to justify a protectionist response. We must recognise that quotas under the MFA, which limited the quantum of exports into individual segments of the global textile market from the most competitive textile exporters, had two kinds of effects. First, it reduced the competition faced by US (domestic) suppliers of textiles from imports from the most cost-competitive centres of global textile production, allowing the former to sustain higher levels of output. Second, it reduced competition between exporters from more and less competitive locations targeting the same market, by restricting the volume of exports from more competitive producers.

As a result of these two different forces at play, the lifting of quotas was expected to have two different effects. One was an increase in the total quantum of imports of restricted items into individual markets because of increased imports from all locations that are cost-competitive relative to domestic suppliers. The second was a re-division of an individual market among exporters, with more cost-competitive suppliers displacing less cost-competitive ones in individual segments.

Chart 1 >> Click to Enlarge

As Chart 1 makes clear, both these tendencies are visible in the US market. Considering all items of textile and apparel imports, the US trade balance report which provides the most comprehensive data, indicates that total imports into the US market rose by close to 20 per cent in the first two months of 2005 (relative to the corresponding period of the previous year) as compared with 8.3 per cent during 2004. Thus the removal of quotas did result in a substantial increase in imports into the US market that would have resulted in some displacement of domestic production.

However, the increase in imports from China, which amounted to 60.5 per cent during January-February 2005 as compared with 25.3 per cent in 2004, was not wholly directed at the displacement of US production. Rather, increased imports from China were accompanied by a decline or slowing down of imports from other sources such as Mexico, South Korea, Hong Kong, Taiwan and Japan. That is, after the removal of quotas, Chinese imports were outcompeting imports into the US from other sources that were earlier “protected” by the MFA regime.

Chart 2 >> Click to Enlarge

This is not to say, however, that China is wiping the floor clean. There are other countries such as the EU-15, the ASEAN countries and countries belonging to the Caribbean Basin Initiative (CBI) that have been able to increase the rate of expansion of their exports. What is disconcerting however is that the Least Developed Countries (LDCs), which do not receive the same special benefits as the CBI group in US markets, have seen a significant decline in the rate of growth of their exports to the US market. But this may partly be due to the disruption caused by the tsunami in at least some of these countries, such as Mauritius.

Some of these features are sharper if we consider an area like apparel, which is where the bulk of the increase in imports into the US from China has taken place. As Chart 2 indicates, while China's apparel exports to the US grew by close to 75 per cent during the first two months of 2005, as compared with 23 per cent during 2004, this was accompanied by a substantial degree of displacement of imports from Canada, Mexico, South Korea, Hong Kong and Taiwan. Further, besides increases in imports from country-groupings such as the EU-15, ASEAN and the CBI, LDCs have registered a much smaller decline in the rate of growth of imports than is suggested by aggregate figures.
In sum, not all of China's dramatic export increase during the first quarter of 2005 was on account of the displacement of US production. It was partly because of displacement of export increases from other countries. And there were countries other than China which contributed to the growth in overall textile imports into the US. Above all, as Table 2 makes clear, the effect of the increase in Chinese exports on exports to the US from individual developing countries has not been as adverse as had been expected.

Table 2: US Textile Imports by Country Major Shipper's Report ($ Mill.)
 
 
 
 
   
Growth Rate
 
2003
2004
Jan-Feb
2004
Jan-Feb
2005
Jan-Feb
2004
Jan-Feb
2005
 World
77434 
83312 
12284.1 
14010 
7.6 
14.0 
 China
11608.8 
14559.9 
2002.9 
3362.4 
25.4 
67.9 
 Asean
11678.2 
12143.6 
1867.7 
2014 
4.0 
7.8 
 CAFTA
9244.6 
9578.6 
1266.9 
1408.4 
3.6 
11.2 
 EU-15
4336.5 
4530 
687.5 
730.9 
4.5 
6.3 
 Sub-Sahara
1534.9 
1781.8 
253.2 
282.5 
16.1 
11.6 
 Bangladesh
1939.4 
2065.7 
324.6 
359.4 
6.5 
10.7 
 Cambodia
1251.2 
1441.7 
234.3 
259.1 
15.2 
10.6 
 Fiji
79.6 
85.8 
13.9 
7.7 
7.8 
-44.6 
 India
3211.5 
3633.4 
588.1 
737 
13.1 
25.3 
 Indonesia
2375.7 
2620.2 
445.4 
477.6 
10.3 
7.2 
 Japan
522.4 
641.7 
78.3 
79.8 
22.8 
1.9 
 South Korea
2567 
2579.7 
393.9 
344.3 
0.5 
-12.6 
 Laos
3.9 
2.1 
0.3 
0.1 
-46.2 
-66.7 
 Malaysia
737.5 
764.3 
117.3 
109.8 
3.6 
-6.4 
 Maldives
93.7 
81 
12.5 
4.7 
-13.6 
-62.4 
 Mauritius
269.1 
226.6 
43.1 
37.5 
-15.8 
-13.0 
 Mexico
7940.8 
7793.3 
1144.9 
1097.2 
-1.9 
-4.2 
 Mongolia
181.1 
229.1 
25.8 


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