Posted on 11/20/2003 9:09:54 AM PST by riri
The Bush administration's decision this week to limit imports of some textiles and apparel from China heightened the world's perception of growing protectionism in the U.S.
The move comes just a week after the World Trade Organization ruled U.S. steel tariffs imposed last year are illegal. The European Union is threatening retaliation. Europe also says it'll impose $4 billion in punitive duties on U.S. goods if Congress doesn't repeal tax breaks for exporters ? also struck down by the WTO.
All this follows the failure of world trade talks over the summer in which U.S. and European farm subsidies were the main points of contention.
"The administration has a credibility problem to which this decision adds," Cato Institute trade policy analyst Dan Ikenson said of apparel quotas. "For three years, it has been preaching the value of free trade, but it can't seem to lead by example."
No trade issue has generated more heat in the past year than the soaring bilateral deficit with China and its impact on U.S. factories, which have shed nearly 3 million jobs since 2000.
The quotas, which impact just 5% of Chinese textile imports, are narrowly focused ? and much weaker than the protectionist measures being pushed by members of Congress and Democratic presidential candidates.
Some see the administration's limited response as a reasonable way of shielding an embattled industry and a way of bringing China to the bargaining table. Others believe the measures will do more harm than good. But few doubt that politics are playing a key role in a trade policy that appears increasingly protectionist.
"All of these moves are political," said John Silvia, chief economist at Wachovia. "What the administration has to show is that they do understand there are industry and regional differences."
Until now, he said, the administration focused "too much (on) macroeconomics and not enough (on) industry economics."
The quotas would limit growth in Chinese imports of knit fabric, brassieres and dressing gowns to 7.5% over the next year.
"They are not meant to solve the industry's problems," Silvia said. "I think they're really meant to buy time, to let workers gradually move into something else. Inexpensive commodity apparel producers are naturally going to gravitate" to low-wage countries.
The textile and apparel industries are among six industries in the U.S. that have lost at least 25% of their work forces the past 2 1/2 years, says Bob Gay, global head of fixed income research at Commerzbank Securities and a former Federal Reserve economist.
"One can rationalize these sorts of temporary quotas on the idea that the transfer of jobs abroad in some key industries is proceeding so quickly as to make the transition difficult," he said. "But it begs the question: Why aren't we doing more to retrain workers to find new jobs in new industries rather than postponing the inevitable by raising protectionist barriers to trade in an election year?"
Officially, President Bush didn't make the call to impose quotas on Chinese textiles and apparel. A Commerce Department panel voted 3 to 1 for the quotas after U.S. textile makers brought a case, says Cato's Ikenson.
The State Department was the lone holdout, he notes, a reminder that a trade dispute could impact the U.S. relationship with China, a key partner in diplomacy with North Korea, in more ways than just economically.
On Wednesday, China delayed trips to the U.S. by delegations to buy soybeans and wheat, part of China's "Buy American" response to criticism over the mounting bilateral trade deficit, which could hit $130 billion this year.
"Is it worth lighting this match when U.S. exporters are going to bear the brunt of the decision?" Ikenson asked.
The quotas "are not going to save any jobs," Ikenson said, since production will just move from China to other low-wage neighbors.
Silvia sees the quotas as "an opening salvo" to bring China to the negotiating table. But, he acknowledges, the policy isn't cost free. "It means there are going to be higher apparel prices," he said. And the relationship with China may hit a bump.
Another impact could be a falling dollar. The euro surged to a record high Tuesday after the U.S. said it would set Chinese textile quotas.
Bush trade policy "is likely to weigh on foreign sentiment toward the U.S. and U.S. assets," wrote Rebecca Patterson, currency strategist at J.P. Morgan Chase. "Without those capital inflows to finance the United States' growing current account deficit, the dollar will stay under pressure."
If the administration rolls back the steel tariffs soon, that could be a step toward "regaining some credibility on free trade," Ikenson said. But, he notes, even if more apparel quotas are imposed, Bush will likely remain the free trader in the 2004 presidential election.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.