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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