China recently announced a measure that will hurt households in the United States and Europe by increasing clothing costs. It will also harm Chinese firms that make inexpensive apparel. That many hailed this measure illustrates the convoluted logic and hypocrisy permeating trade policies.
China’s action is a new tax on its exports of textiles and clothing. Chinese authorities said the move would result in “a smooth transition” as a global quota system ends Jan. 1. They said this action was voluntary, but it clearly was a response to U.S. and European Union threats of more draconian restrictions if China did not act.
A tax on cloth and garment exports increases the prices people pay for clothing. Still, most consumers may not notice because the action will largely prevent prices from dropping rather than increasing them.
Repeated studies of the lapsing quota system generally estimated that it would increase clothing costs by $200 to $500 per year per family. While less than most households’ real estate or Social Security taxes, it is not negligible. Moreover, it is highly regressive.
The expiring Multifiber Arrangement grew out of protectionist measures introduced by the Eisenhower administration in the late 1950s and similar measures by Europe in the early 1960s. It protected U.S. and EU manufacturers with quotas limiting imports. These quotas were parceled out to many developing countries, often reflecting Cold War and decolonization policy concerns.
These quotas favored countries such as Bangladesh, newly independent from Pakistan, and largely froze out China and other communist countries. Overall, the agreement hurt developing countries, but the crumbs thrown to otherwise uncompetitive countries such as Bangladesh garnered some support.
The Uruguay round of negotiations that created the World Trade Organization in 1994 included a phase-out of the quota system over a 10-year period. That phase-out ends Dec. 31. As of 2005, world textile trade will be less restricted than before, though far from completely free. Low-cost producers such as China and India will benefit; the higher-cost developing countries will lose business.
The remnants of U.S. and EU textile and apparel industries have reacted, however, demanding curbs to prevent further loss of market share. World trade rules do allow countries to impose temporary import restrictions when there are precipitous shifts in trade levels. Such “safeguards” are designed to give affected industries some time to adjust. Their imposition at the end of a 10-year adjustment period represents the height of protectionist hypocrisy.
Bowing to threats, China voluntarily imposed an export tax – a measure that our Founding Fathers thought so inimical to a nation’s interest that they wrote an explicit ban of it into our Constitution. Now, even poor U.S. households will effectively pay money into the Chinese treasury in an effort to protect a few low-paying jobs in the Carolinas.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.