TEXTILE TRADE POLICY
April 28, 2005
A surge in Chinese imports occurred when the 30-year-old Multi-Fiber 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 percent 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 Center on Entrepreneurial Innovation at the Independent Institute:
- Chinese textile imports will be limited to a 7.5 percent increase in any 12-month period, a major restriction from the latest 12-month increase of 147 percent.
- If Chinese competition is restricted, U.S. consumers will face higher prices; retail executives say the MFA added 23 percent 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 labor 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 percent over the last 12 months, but:
- Men's apparel prices fell 0.9 percent and women's apparel prices fell 0.2 percent.
- A survey of major textile importers by Goldman Sachs found their costs would decline by 5 to 15 percent without quotas.
- Wall Street analysts predict retail clothing prices will drop by 5 to 11 percent 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.
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