The decision by the Executive Council of National Textile
Association (NTA) of the United States, which asks to re-impose
quotas on three kinds of Chinese textile products, has further
worsened Sino-US trade friction. Why is the US side taking such
irrational action since
bilateral relations had improved continuously since the 9/11
terrorist attack?
There are both economic and political factors: the upcoming 2004
presidential and congress elections. As we all know, George Bush,
the former US President, lost the presidential re-election due to a
stagnant economy during his administration. Currently, under the
administration of G. W. Bush, the US economy has also gone
downward, with unemployment at 2.7 million. Employment problems are
especially severe in the textile sector.
Although the 2003 economic forecast is much better than previous
years, the unemployment rate in the United States still reached 6
percent in October, which might undermine sustainable growth and
development.
President Bush has said that the creation of jobs was prior to
economic growth. Generally, the growth of jobs depends on two
things: the expansion of production and growth of domestic
consumption and export. In the past two years, economic recovery
was mainly pulled up by expenditures and enterprise investment, but
made little progress. Under the pressure of a high unemployment
rate, domestic consumption insufficiency, and increasing fiscal,
trade deficits, the US government gave up its strong dollar policy,
and strived to expand exports in order to increase employment and
promote economic recovery.
But protectionism is unwise in economic globalization. It not
only dampens bilateral economic ties but also causes negative
effects in bilateral political relations.
First, textile quota actions don't accord with procedures which
the NTA publicized, and the commitments of WTO.
Second, the depression of the US textile sector is fundamentally
caused by the industrial structure of the US economy, instead of
imports from China. Thus, the quota action on China is unfair.
China's labor-intensive products including textile products are
internationally competitive in price. The low-price products are
welcomed in the US, and accordingly occupy a big market share. That
is normal in the market economy, and there is no dumping. The rapid
growth of Chinese textile products is due to the abolishing of a
textile quota system.
On the other hand, hi-tech and other kinds of products from the
United States are also competitive in the world. However, the US
government adopts the discriminative export-control policy and puts
limitation on its export to China, saying that it might strengthen
China's military power.
Third, the trade imbalance between China and the United States
indeed exists, but considering calculation methods China doesn't
think the trade deficit is over US$100 billion as the US government
has alleged.
Meanwhile, China has already taken action to increase its import
from the United States. Several weeks ago, China signed US$6
billion deals with the US enterprises, and plans to continue
purchasing from the United States.
Therefore, it's extremely inappropriate for the US government to
put import quotas on Chinese textile products. If it really wants
to solve the trade imbalance, it should first loosen or abandon its
discriminative export-control policies.
Fourth, China's import from the US has created lots of jobs in
the United States. Statistics show that during the 1979-1989
period, China's imports from the US and exports to the US rose by
15 percent and 22 percent annually. The bilateral trade also kept
rising in the 1990s.
Since both sides reached WTO deals in 1999, import from the US
increased 15 percent annually. In the first nine months of 2003,
import growth was about 26.2 percent.
The export of textile materials and garments from the US to
China has also rapidly increased. In the first nine months of 2003,
China imported US$787 million worth of textile products from the
United States, rising 148 percent over the same period last
year.
Textile industry, as China's traditional pillar industry, has
greatly contributed to China's economic growth. The textile quota
imposed by the US government will lift the custom duty, influence
Chinese export companies and dampen the development of China's
textile industry.
Fifth, in order to limit imports from China, the US government
together with Japan and other developed countries greatly boosts
the so-called "China Economic Threat", including the viewpoints
like China export deflation, "made-in-china" products dumping and
renminbi revaluation.
The US government put the Sino-US trade imbalance and China's
forex system together, and pressured China to adjust the so-called
forex-control system. The US senate even put forward bills,
threatening that if China doesn't give up the US dollar-pegged
forex system, the US will impose 27.5 percent custom duty on all
Chinese products. John Snow, the financial sectary of the United
States, has openly asked for renminbi appreciation, while some
industrial associations also attribute the high unemployment rate
to China's so-called undervalued forex system, alleging that it
enables these cheap Chinese products to snap up the US market.
Haruhiko Kuroda, vice finance minister of Japan published
articles in last December, saying that China exported deflation to
Taiwan, Hong Kong and the whole world. He also asked China to take
responsibility for renminbi appreciation. Among those asking for
renminbi appreciation, some said that the renminbi should
appreciate 10-15 percent, while some believed it should be 30
percent, 40 percent or even higher.
The recent textile quota on three kinds of textile products is
the retaliation toward China's keeping a stable forex system, with
the aim of pressurizing a renminbi appreciation.
Actually, the so-called "China exports deflation" and
"undervalued renminbi" issues are not only? short-term trade
protectionism, but also jealousness for China's rapid economic
growth through export. But the export's contribution ratio to
China's GDP growth is not as large as is thought. The contribution
ratio in 2001 was negative. In 2002, the year after China's entry
into the WTO, China's export turned better with the recovery of the
world economy. Nevertheless, export contribution ratio to GDP
growth was only 10 percent, while that of investment and
consumption were 70 percent and 20 percent respectively.
A research report from Goldman Sachs says that even if the
renminbi appreciates 10 to 15 percent, which might make the price
of Chinese products rise, it does little to help the reduction of
the US trade deficit, the therapy of Japan's economic stagnancy or
the EU's GDP growth expectations. The international competitive
ability of Chinese products is due to its cheap labor costs and
technical innovation, which draw lots of foreign direct
investments. In addition, China's export also includes these
US-funded and Japanese-funded enterprises. These US and Japanese
investments in China are the inevitable result of industrial
restructuring.
China is potentially a huge market. In the long run, China's
domestic consumption expansion policy, west China's development
strategy, the construction of a well-off society, and its
commitment to the WTO will provide opportunities for the entry into
the Chinese market. Statistics show that China's trade volume in
2003 will exceed US$800 billion, half of which will be imports from
outside. The Chinese government has said that in the next five
years, imports will reach US$1.5-2 trillion. If holding a
protectionist policy, the US will lose its market share in the
Chinese market.
The article was written by Gu Yuanyang, former director of
World Economic and Political Research Institute under the Chinese
Academy of Social Sciences, and was translated by
China.org.cn.
(China.org.cn by Tang Fuchun and Daragh Moller, November 27,
2003)