Textile trade policy

A surge in Chinese imports occurred when the 30-year-old Multi-Fibre Agreement (MFA), which placed quotas limiting textile imports to the United States, was finally abolished in January. Since then, textile and apparel imports from China rose 39 per cent from their December levels.

Unfortunately, the Bush administration announced plans for an early warning system to monitor Chinese textile imports along with possible safeguard quotas.

But restrictions will have negative consequences for the U.S. economy, says Benjamin Powell, Director of the Centre on Entrepreneurial Innovation at the Independent Institute:

Chinese textile imports will be limited to a 7.5 per cent increase in any 12-month period, a major restriction from the latest 12-month increase of 147 per cent.

If Chinese competition is restricted, U.S. consumers will face higher prices; retail executives say the MFA added 23 per cent to the cost of textile goods sold in the United States.

Despite claims by special interest groups, restrictions on textiles will not impact the total number of jobs in the United States. Total U.S. employment is a function of the size of the labour force, not trade policies, explains Powell.

Besides, consumers are already beginning to reap the benefits of free trade and potential benefits are even greater. Since the end of the MFA, the overall consumer price index increased three per cent over the last 12 months, but:

Men’s apparel prices fell 0.9 per cent and women’s apparel prices fell 0.2 per cent.

A survey of major textile importers by Goldman Sachs found their costs would decline by 5 to 15 per cent without quotas.

Wall Street analysts predict retail clothing prices will drop by 5 to 11 per cent if no new restrictions are imposed.

Instead of pandering to textile interest groups, the Administration should make a serious commitment to free trade, says Powell.

Source: Benjamin Powell, ‘Bush League’ Trade Policy Independent Institute, April 4, 2005.

For text: http://www.independent.org/newsroom/article.asp?id=1488

For more on Benefits of Trade: http://www.ncpa.org/iss/tra/

FMF Policy Bulletin/ 03 May 2005