By Carlos Moore
WASHINGTON, DC — The U.S. textile machinery industry is facing the same uncertain and unsettling changes that its biggest and best customers — domestic textile manufacturers — are facing.
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No one knows exactly how textile and apparel trade patterns will develop in 2005’s quota-free environment, except that if unchecked, China will be the dominant player in world trade in those products. And the most important factor in China’s future dominance will be whether safeguard provisions and other trade remedies against China will be used effectively by the U.S. government.
The American Textile Machinery Association (ATMA) remains committed to its U.S. customer base, but in 2005 and beyond faces the same problem as its domestic customers. U.S. textile mills have been forced to find overseas markets for its production as apparel makers left the U.S. to source from low labor-cost areas.
Textile machinery companies also must look for new markets as part of a survival strategy and China’s potential dominance threatens both U.S. mills and machinery makers.
Thus far, the strategy is working fairly well. Most sales of U.S. textile machinery have been to U.S. customers, but exports have increased modestly for the past four quarters. Some of those exports are, unfortunately, used machinery from closed domestic mills (possibly more than “some,” but the data do not identify used machinery exports).
But exports of other, new machinery have continued to grow. For example, exports of finishing, dyeing and printing equipment and fabric-forming machinery for nonwovens have shown steady growth over the past few years.
Some of the major markets for these exports are countries in the European Union where the weaker dollar has been a boost for U.S. exporters. China is a different story, as U.S. exports of textile machinery dropped by 12.5 percent in the third quarter of 2004 compared to the third quarter of 2003.
China obviously remains a large market, but as with nearly all machinery, China is pursuing a policy of developing its own domestically produced equipment.
This policy is bolstered by China’s artificially undervalued currency, maintained by the Bank of China at 8.28 yuan to the dollar. The result is that U.S. textile machinery is 30 percent to 50 percent more expensive in Chinese yuan terms than it would be if the yuan were valued by the free market.
Beyond 2005
Looking beyond 2005, ATMA members find at least two scenarios to be possible. The first is the “China Wins” scenario that most of the media and much of the broad industry seems to believe will happen. In that scenario, China gains a 60 percent to 70 percent share of world textile and apparel trade, with the rest going to a few Asian countries such as India, Pakistan and Indonesia and a very small share to the Caribbean and Central America.
If that happens, U.S. textile manufacturers and the U.S. textile machinery industry will have a major struggle just to survive.
However, the “China Wins” scenario is not a foregone conclusion; it depends mostly on trade policies and actions taken (or not taken) by the Bush Administration. Another scenario is possible and, in fact is doable — even within the free trade policy parameters of the White House.
The alternative to “China Wins” can be called “Let’s Trade by the Rules.” In that case, the Bush Administration would decide to fight rather than passively surrender its textile, apparel, fiber and machinery markets.
Because the administration states that it supports policies such as getting our trading partners to comply with agreements, enforcing our borders and negotiating agreements that are fair and balanced, one might expect U.S. government officials to give some consideration to rejecting a “China Wins” outcome in favor of “China Plays by the Rules.”
Here is what the Bush Administration could do under a “Rules” scenario without violating any of the WTO or other trade commitments it holds so dear:
• it could use the China textile safeguard aggressively;
• It could instruct the Commerce Department to file countervailing duty cases against Chinese subsidies, or at least, permit U.S. companies to file such cases;
• it could encourage U.S. companies to file cases against other countries — notably India, Pakistan, South Korea and Taiwan — that dump or subsidize their exports into the U.S. market;
• it could make it a high priority to achieve fair and equitable conditions of access to the markets of all major shippers of textiles and apparel; and
• it could achieve this equity in access in the ongoing WTO negotiations by setting current U.S. textile and apparel tariffs as the benchmark to which all the major countries must reduce their tariffs. Those countries would also have to eliminate their non-tariff barriers in 2 to 3 years.
These five policy initiatives would have several immediate advantages for the Bush Administration in foreign and domestic policy and in Republican politics:
• small-country garment makers would not be destroyed by China and would not face the social devastation of massive and sudden unemployment that could lead to unrest and geo-political crises;
• the U.S. textile industry and its 400,000 workers would have a chance to survive with effective use of U.S. trade laws, current U.S. tariffs and export opportunities in nearby markets and, possibly, elsewhere; and
• the benefits of ongoing jobs for the 400,000 textile workers in key Southern states would strengthen future Republican political objectives.
Unfortunately, the Bush Administration, by all indications, is not pursuing any alternative to “China Wins.” Without actually embracing “China Wins” the administration is, nonetheless, letting it happen.
It has handled the China safeguard in a way that it now faces judicial delays that will prevent it from establishing safeguard quotas with China before damaging surges occur. It has not instructed the Commerce Department to move aggressively with trade remedies against Chinese subsidies. It has not even supported legislation pending in the Congress to make China’s subsidies subject to U.S. countervailing duty law. It is letting China set its own timetable for revaluation of its currency.
Moreover, it is pursuing an approach in the WTO negotiations that would eliminate all U.S. textile and apparel tariffs — an action that, if enacted, would drive stakes through the hearts of domestic textile companies, their 400,000 workers and garment makers in Mexico, Central America and the Caribbean.
“China Wins” need not be a foregone conclusion, and ATMA is ready to add its voice to others committed to pressuring the administration to adopt an alternative scenario.
Carlos Moore is president of AM&S Trade Services, L.L.C., a consulting firm specializing in international trade and government relations in Washington, DC. He is a consultant for government affairs with ATMA. Moore can be reached at cmoore@amstradeservices.com.
