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Textile
Free For All
Laissez Faire: Free trade. When I was in college,
this was explained as one of the pillars of the American economy.
With true free trade, government intervention is non-existent,
borders are porous in both directions and the market sets
its own price. In actual fact, unbridled free trade has all
kinds of problems. Without government intervention there would
be no limits imposed on what could be sold. Imagine the corner
store selling grenade launchers and Viagra of questionable
origin from Thailand.
The American
government has grown more and more involved in the oversight
of trade for several reasons. In limiting what can and cannot
be sold it often serves as a safeguard for the public against
dangerous items like grenade launchers and harmful drugs like
heroin. Perhaps equally important, government regulation of
imports helps to protect American business. Goods coming into
the US are checked for copyright protection, false labeling
(UL listing for example) and are classified by category for
duty and quota purposes.
In addition,
our government and the governments of other countries has
placed limits and protections on items it deems worthy of
protection. A good example of this is steel. Steel is now
produced cheaply in countries like Korea and China. Were steel
allowed unhindered entrance into the US, the US steel industry
(already on the ropes) would collapse in the face of foreign
competition. As a protection for American business, our government
limits the quantities of foreign steel that may be imported
in any given year. It also levies a duty on imported steel
that artificially increases the price to effectively make
American steel competitive in price. The government may also
subsidize certain segments of the economy (peanut farmers,
for example) to help them remain economically viable.
The up
side of this is that American jobs in all sorts of industries
from agriculture to manufacturing are protected from cheap
foreign imports that rely on cheap foreign labor. On the down
side the American consumer pays more at the cash register
because government duties ultimately increase the retail price
of everything from cotton t-shirts to automobiles.
In January,
the US followed through on its commitment to the World Trade
Organization to eliminate quotas on textile goods from abroad.
In fact, textile quotas were eliminated among all of the WTO
members, including China and India. Duties remain in effect,
so the effect on prices may be somewhat limited at least initially.
The average duty on textile products is about 25%. It has
been estimated that American consumers pay an extra $50 to
$60 billion dollars a year as a result of import tariffs.
For our
company, the elimination of quotas is a huge plus. We have
had problems in the past getting goods into the country. As
the end of the year approached, quotas from India for certain
categories like women's cotton skirts would be full. If we
wanted to bring in items that were over the quota, we either
had to source from another country or wait until the next
year's quota to open up.
There
were also more barriers imposed by the quota in terms of paperwork
and regulation. We were forced to pay extra in the country
of origin and in the US to our customs broker in order to
process the quota paper work.
It should
be noted that the quotas were not given up without a fight
from the American textile industry. Ultimately, after court
battles and intense lobbying, the US mandated the elimination
of the quotas per the agreement with the WTO. Had the US not
complied, it would have faced sanctions and intense pressure
from other WTO countries.
Consumers
can expect to pay less at the cash register for clothing as
cheap Chinese and Indian textiles, no longer limited by quotas,
supplant more expensive alternatives from within the US and
from "middle class" countries like the Philippines
and Malaysia. Duties will remain in place for the foreseeable
future, but even that may change: there is growing pressure
on "rich countries" like the US and EU countries
to eliminate duties and subsidies. If that happens, expect
to see a substantial drop in wholesale and subsequent retail
prices.
For more
info, see this
article by Edward Gresser, Director of the PPI Project
on Trade and Global Markets
(This
article written by Mike McGinnis and published originally
on indiasilver.com.
We allow republication provided the piece is copied in its
entirety with links and attribution.)
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