Chinese Cloth Trade in the US - Example

Chinese cloth trade in the US Introduction The economic ties between the US and China have increased considerably in the past few decades. In fact, the trade between the two countries has reached around $409 billion in 2008 from $5 billion in 1980. This made China the second largest trading partner of the US. Further, it made China the third largest exporter to the US as well. It is estimated that around $28 billion has been invested by the US companies in China during 2007. It is however, interesting to note that the apparel and textile trade between China and the US had the most impact in these decades. The import of apparel and textile has risen exponentially in the US during the past few decades and China played a significant role in this growth (Morrison, 2009). Therefore, this paper would focus on how Chinese cloth trade works in the US. It would understand the tariffs if any imposed by the US government on the Chinese cloth exporters to protect the domestic market. Further, the paper would focus on the impact of the Chinese cloth industry on the world cloth as well as the US cloth prices. Finally, the paper would analyse who is benefiting from this trade, the US consumers, the US cloth producers, the US government, Chinese suppliers or the Chinese domestic consumers. Trade between China and the US Although, the textile trade between China and the US has increased considerably over the last few years, this growth was restricted previously due to the imposition of the quota limits by CITA on Chinese imports. These two countries signed their first agreement regarding cloth trade in 1980. Later during the 1990s more such agreements were signed that were aimed at helping the US manufacturers to adjust with the liberlisation taking place in the cloths trade. However, such agreements only resulted in impeding the growth of the Chinese cloths industry and domination of the US over pricing and other factors in the industry (Bradsher and Barboza, 2005). Thus, it was decided to end the quota regimen which has subsequently resulted in the growth of the cloth import between the two countries. The quota system was finally removed on January 1, 2005 and the cloth trade is now being governed by the WTO rules as well. Further, with the inclusion of China in the WTO in 2001, its textile imports to the US also increased substantially. The US imported around $15 billion worth of cloths from China in 2004, as compared to $5 billion in 1995 (Morrison, 2009). The impact of this removal of the quota can be clearly traced in the growth of several China-based textile companies. For instance, Jiangsu Sunshine Group that was formed in 1986 started off as a small enterprise but due to the liberalised policies in the textile industry has become a leading company producing wool, yarn and finished garments. It now employs more than 6,500 workers and has around 34 factories. Due to China’s inclusion in the WTO, the company also benefited and increased its exports to countries around the world. It currently exports to around 20 countries and uses half of its production for exports. Another textile manufacturer that gained from this liberalised policy is Youngor Group. It has not only become a leading manufacturer and exporter of textile but has even diversified into other businesses such as real estate. The company exports its leading Younger brand to countries such as Japan, India and the US. The company not only exports its fabrics but also finished products to other countries. Tariffs imposed by the US government However, this growth of the China-based textile manufacturer has impacted the profits of the domestic US-based manufacturer, especially after the post-quota regimen. Thus, many US companies have asked the government to impose special provisions which would allow the country to curb the import of those Chinese goods that might harm the US companies. The US-based textile manufacturers have been lobbying the most to get such provisions passed as they are facing huge competitions from China. This pressure has mounted manifold after the elimination of the quota system in January 2005. As per the data released by the US Commerce Department, the US imports textiles the most from China. In fact, the import from China increased to about 275 per cent during 2002-2008. This makes it apparent that the US textile manufacturers are suffering due to the increase in imports from China. Thus, the US government has been trying to limit the exports from China to the US. Due to the growing pressure by the US government, China finally agreed to restrict some of its textile exports to the US in November 2005. As per this agreement, China did not export certain textiles to the US during 2006-2008 (Morrison, 2009). Impact of Chinese cloth industry on the world cloth and US cloth prices Although, there had been various uncertainties around the elimination of the quota system, it became evident that China had become the greatest beneficiary of this system due to its price competitiveness. The export of cloths from China has increased to capture around a quarter of the total global exports since the time it has joined the WTO in the year 2001 (de Janquieres, 2004). The country has also improved its quality and capacity to meet the growing demand. Further, the availability of good quality fabric in a cheaper rate has also resulted in the growth of the industry in China. As per the report by the US International Trade Commission, the country is posed to have competitive advantage over other countries. This is due to the fact that it could offer lower prices as the country has the advantage of low wages, high production and production of high quality products with lower costs. China has also been regarded as the country that produces textile of any range and quality. Thus, it has become the first choice of suppliers in the US (Gereffi, 2001). This has resulted in price competitiveness between the US-based and Chinese suppliers. The US manufacturers are being pressurised to decrease the cost of production, cut jobs and reduce the market price of the end-products to compete with the lower prices offered by the Chinese manufacturers (Anderson, 2002). The price margin is also due to the fact that it is being believed that the Chinese yuan is undervalued and therefore, the Chinese manufacturers are being able to earn more profits even at lower margins. Due to this reason, the US government has been pushing for revaluing yuan during the past few years. In fact, in 2005, the US Senate decided to impose a tariff of 27.5 per cent on Chinese exports if China does not revalue yuan. However, China has repeatedly stated that it would not revalue yuan as the time for the revaluation is not ripe (Gundzik, 2005). Conclusion The removal of the quota regimen has definitely helped the Chinese suppliers to flourish. Further, China’s inclusion into the WTO in 2001 has resulted in opening newer regions for imports for the country. The advantages of producing any amount of textile, at any cost and quality have given a competitive edge to China over other countries, and especially the US. The US-based manufacturers are not able to compete with the manufacturing competence and scale of China. Further, the regulated Chinese environment has also resulted in the growth of the industry. This is clearly not the case for the US-based manufacturers, who are being penalized severally for non-compliance of factory acts and workers’ welfare. However, in case of China, the companies are often criticised for offering low wages to the workers and not providing proper healthcare facilities to them. Nonetheless, the ultimate beneficiary in this entire trade is the end-user i.e. the US consumers. Post the removal of quota, the consumers are being able to buy most merchandise at a very low price and that too at variety of ranges and quality. It has definitely opened the entire consumer market by giving people more options. However, it should also be noted that price is not the only determinant for the success of a product. With the advent of globalisation and availability of a variety of products at competitive prices, consumers are increasingly getting driven by quality rather than price. Consumers are looking more at quality of the product and the actual value of the product rather than just the price tag. This trend is being more evident post the global depression. Now, the consumer is much more careful about his expenditure and only spends on products that provide value for money. Reference: Gundzik, Jephraim P. “Washington ignorant of China's importance to US”. Asia Times 14 July 2005. De Janquieres, G. “The textile revolution”. Financial Times 19 July 2004. Gereffi, G. “Global sourcing and the US clothing industry”. Journal of Textile and Clothing, Technology and Management 2001: 1-5. Morrison, Wayne M. “China-U.S. Trade Issues”. Congressional Research Service 23 June 2009. Anderson, Jonathan. “China, Asia’s Paper Tiger?” The Asian Wall Street Journal 15 August 2002. Bradsher, Keith and Barboza, David. “As Exports Boom, China Risks Global Backlash”. International Herald Tribune 9 April 2005. Read More