Losses all around from US-China garment deal

The beneficiaries are saying that this agreement to place new quotas on China’s exports to the USA restores market predictability. But that’s hogwash. Almost everyoneexcept the US garment makers will loose from these restrictions, which make future trade deals less certain. It’s shortsighted, costly and likely to rebound on the USA

US consumers, who leaped at the chance to buy lower-cost Chinese garments, will loose from the new, three-year quantitative restrictions (some apparently stated in terms of square-meters of cloth). Chinese exporters will lose volume but may be somewhat compensated by higher prices in the US market.

Other exporters in Asia and Africa may have hoped to pick up what the Chinese lost will be disappointed because the higher US prices will cut back on consumption to some extent and surplus Chinese supply will depress prices in all other markets (except Europe, which has done its own wretched deal).

The US-based garment industry that failed to adjust to competitive conditions during the 10-year phase-out of the ‘old’ quotas on garment imports (finally eliminated in January this year) will get almost no benefit from an additional break of 3 years because they can’t close off access by other suppliers to the US market. The ‘screw-you’ safeguard built into China’s terms of accession to WTO don’t apply to Bangladesh or Cambodia or Vietnam. They will go on supplying US demand ahead of the domestic industry. My guess is that whatever is left of the US industry will be heading off-shore as fast as it can.

Consumers elsewhere in the world may gain temporarily from lower import prices, but they’ll lose overall because, thanks to this deal, world trade rules that are supposed to guarantee open markets will be just that little bit weaker. It turns out that the multilateral trading system is about power and pragmatism, after all.

We can be confident the Chinese have learned from this restriction (and from the earlier restrictions by Europe). The USA wants to continue to protect its market against China’s garments even after a 10-year phase-out of the old quotas, but insists that the Chinese fully implement the WTO rules on intellectual property. What the textile/garment deal says to China is: “It’s ok to be purely pragmatic about these things; when it’s inconvenient to stay the course, don’t”.  China won’t need to be told twice.

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