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US Textile Quota Criticized by Expert

The decision by the Executive Council of National Textile Association (NTA) of the United States, which asks to re-impose quotas on three kinds of Chinese textile products, has further worsened Sino-US trade friction. Why is the US side taking such irrational action since bilateral relations had improved continuously since the 9/11 terrorist attack?

There are both economic and political factors: the upcoming 2004 presidential and congress elections. As we all know, George Bush, the former US President, lost the presidential re-election due to a stagnant economy during his administration. Currently, under the administration of G. W. Bush, the US economy has also gone downward, with unemployment at 2.7 million. Employment problems are especially severe in the textile sector.

Although the 2003 economic forecast is much better than previous years, the unemployment rate in the United States still reached 6 percent in October, which might undermine sustainable growth and development.

President Bush has said that the creation of jobs was prior to economic growth. Generally, the growth of jobs depends on two things: the expansion of production and growth of domestic consumption and export. In the past two years, economic recovery was mainly pulled up by expenditures and enterprise investment, but made little progress. Under the pressure of a high unemployment rate, domestic consumption insufficiency, and increasing fiscal, trade deficits, the US government gave up its strong dollar policy, and strived to expand exports in order to increase employment and promote economic recovery.

But protectionism is unwise in economic globalization. It not only dampens bilateral economic ties but also causes negative effects in bilateral political relations.

First, textile quota actions don't accord with procedures which the NTA publicized, and the commitments of WTO.

Second, the depression of the US textile sector is fundamentally caused by the industrial structure of the US economy, instead of imports from China. Thus, the quota action on China is unfair.

China's labor-intensive products including textile products are internationally competitive in price. The low-price products are welcomed in the US, and accordingly occupy a big market share. That is normal in the market economy, and there is no dumping. The rapid growth of Chinese textile products is due to the abolishing of a textile quota system.

On the other hand, hi-tech and other kinds of products from the United States are also competitive in the world. However, the US government adopts the discriminative export-control policy and puts limitation on its export to China, saying that it might strengthen China's military power.

Third, the trade imbalance between China and the United States indeed exists, but considering calculation methods China doesn't think the trade deficit is over US$100 billion as the US government has alleged.

Meanwhile, China has already taken action to increase its import from the United States. Several weeks ago, China signed US$6 billion deals with the US enterprises, and plans to continue purchasing from the United States.

Therefore, it's extremely inappropriate for the US government to put import quotas on Chinese textile products. If it really wants to solve the trade imbalance, it should first loosen or abandon its discriminative export-control policies.

Fourth, China's import from the US has created lots of jobs in the United States. Statistics show that during the 1979-1989 period, China's imports from the US and exports to the US rose by 15 percent and 22 percent annually. The bilateral trade also kept rising in the 1990s.

Since both sides reached WTO deals in 1999, import from the US increased 15 percent annually. In the first nine months of 2003, import growth was about 26.2 percent.

The export of textile materials and garments from the US to China has also rapidly increased. In the first nine months of 2003, China imported US$787 million worth of textile products from the United States, rising 148 percent over the same period last year.

Textile industry, as China's traditional pillar industry, has greatly contributed to China's economic growth. The textile quota imposed by the US government will lift the custom duty, influence Chinese export companies and dampen the development of China's textile industry.

Fifth, in order to limit imports from China, the US government together with Japan and other developed countries greatly boosts the so-called "China Economic Threat", including the viewpoints like China export deflation, "made-in-china" products dumping and renminbi revaluation.

The US government put the Sino-US trade imbalance and China's forex system together, and pressured China to adjust the so-called forex-control system. The US senate even put forward bills, threatening that if China doesn't give up the US dollar-pegged forex system, the US will impose 27.5 percent custom duty on all Chinese products. John Snow, the financial sectary of the United States, has openly asked for renminbi appreciation, while some industrial associations also attribute the high unemployment rate to China's so-called undervalued forex system, alleging that it enables these cheap Chinese products to snap up the US market.

Haruhiko Kuroda, vice finance minister of Japan published articles in last December, saying that China exported deflation to Taiwan, Hong Kong and the whole world. He also asked China to take responsibility for renminbi appreciation. Among those asking for renminbi appreciation, some said that the renminbi should appreciate 10-15 percent, while some believed it should be 30 percent, 40 percent or even higher.

The recent textile quota on three kinds of textile products is the retaliation toward China's keeping a stable forex system, with the aim of pressurizing a renminbi appreciation.

Actually, the so-called "China exports deflation" and "undervalued renminbi" issues are not only  short-term trade protectionism, but also jealousness for China's rapid economic growth through export. But the export's contribution ratio to China's GDP growth is not as large as is thought. The contribution ratio in 2001 was negative. In 2002, the year after China's entry into the WTO, China's export turned better with the recovery of the world economy. Nevertheless, export contribution ratio to GDP growth was only 10 percent, while that of investment and consumption were 70 percent and 20 percent respectively.

A research report from Goldman Sachs says that even if the renminbi appreciates 10 to 15 percent, which might make the price of Chinese products rise, it does little to help the reduction of the US trade deficit, the therapy of Japan's economic stagnancy or the EU's GDP growth expectations. The international competitive ability of Chinese products is due to its cheap labor costs and technical innovation, which draw lots of foreign direct investments. In addition, China's export also includes these US-funded and Japanese-funded enterprises. These US and Japanese investments in China are the inevitable result of industrial restructuring.

China is potentially a huge market. In the long run, China's domestic consumption expansion policy, west China's development strategy, the construction of a well-off society, and its commitment to the WTO will provide opportunities for the entry into the Chinese market. Statistics show that China's trade volume in 2003 will exceed US$800 billion, half of which will be imports from outside. The Chinese government has said that in the next five years, imports will reach US$1.5-2 trillion. If holding a protectionist policy, the US will lose its market share in the Chinese market.

The article was written by Gu Yuanyang, former director of World Economic and Political Research Institute under the Chinese Academy of Social Sciences, and was translated by China.org.cn.

(China.org.cn by Tang Fuchun and Daragh Moller, November 27, 2003)

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