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China won’t monopolize textiles

By: | at 07:00 PM | Channel(s): International Trade  

By Karen E. Thuermer, AJOT

January 1st ushered in the elimination of quotas on apparel and textile exports from most of the world. In anticipation of the unprecedented event, many have wondered how the elimination of such major quotas would impact global commerce and if it would be this year’s Y2K?

Already nay sayers are making predictions about how it will impact the future of the US textile and apparel industries, a sector already significantly downsized in the United States. Of primary concern: Will Chinese and Indian goods suddenly flood the US market? Also, will American manufacturers be left crippled, at best, or out of business, at worst?

The US Trade Commission concluded in its own report released in January 2004 that China would become “the supplier of choice” for most US importers. The reason: China’s “ability to make almost any type of textile and apparel product at any quality level at a competitive price.”

No apparel apocalypse

Having conducted over a decade of research on America’s apparel and textile manufacturing sector, Fred Abernathy and David Weil of the Harvard Center for Textile and Apparel Research, are certain the situation is not so ominous. “There has been a lot of discussion by national and international public bodies about what is going to happen,” Weil says. “Conventional wisdom states that China is going to rapidly take over the world for global sourcing of textiles and apparel.”

Prior to the removal of the quotas, China accounted for 14% of US imported apparel.

Weil points out that this belief is based on the basic principles of international trade: factor prices, exchange rates, shipping costs and tariff rates.

“The belief is that low wages ultimately drive the location for production,” he says. “When sourcing decisions faced by global retailers and manufacturers are made strictly based on these traditional forces, it becomes obvious why so many producers are left wondering how to protect their present share of the huge US or EU markets. In particular, garment workers, their families and communities within the United States and other developed countries appear most vulnerable to lower cost developing nations no longer bounded by quotas.”

Over simplification

Abernathy and Weil dispute this simplified view and offer a different position on what will happen over the next five to eight years.

“We certainly do not dispute the fact that the world will look very different as a result of the removal of quotas,” Weil states. “But we don’t look at this as a stand alone industry, but as a larger segment of the supply chain in the retail industry.”

Weil points to 2003 statistics that indicate that more than 25% of textiles and apparel were imported to the United States from Mexico and Caribbean Basin countries, whereas 12% was coming from China.

“Year 2004 saw a substantial up-tick of products coming from China, but the Caribbean Basin and Mexico remained important suppliers,” he says.

Weil adds that today retailers operate under the premise of providing the right product at the right time for the lowest cost.

“Today retailers like Wal-Mart are harnessing technology to reduce their exposure to risk—the risk of selling many different products,” he states. “They do that by changing their relations with suppliers, and in particular, making certain suppliers respond to real information based on weekly demands. The retailer is only ordering based on actual sales.”

As a result, the important driver to replenishment is the production of goods close to market. Retailers are now concerned about any interruptions they may experience getting goods to their stores, be it mere geographical distances or those that result from political disruption such as terrorism. Bad infrastructure also plays into the equation, whereby many low-cost locations simply have poor roadways, seaport and airport facilities. Even weather and natural disasters are factors, as was most recently evident from the powerful earthquake and tsunami in Indonesia and Sou