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March 09, 2005

Free Trade in Textiles

From Simon World:

Simon World :: Free trade working too well: "Ask someone if they prefer cheaper clothes prices for the same quality product and the answer is obvious. Likewise the manufacturer who can produce the clothes at a cheaper price but still turn a profit. Especially happy should be the Governments of the manufacturing nation (all those extras jobs) and the consuming nations (all those happy voters/consumers). Alas, not always.

On January 1st this year the world abolished quotas on textiles. China was expected to rapidly claim market share from other producers who had previously benefited from favourable quotas.... From January 2004 to January 2005 China's exports of cotton trousers to the USA increased by 1,332% and of cotton knit shirts by 1,836%. Over the same period to the EU exports of jerseys expanded by 735% and blouses by 301%. At the same time the average unit cost of those jerseys and blouses fell by 36%. People are buying more for less.... China is rightly petrified of protectionist action by the EU and America, with both domestic and international competitors wailing. The option exists for these countries to impose 'safe-guard actions' to protect their domestic industries, which will re-impose quotas....

China has responded by introducing a new licensing system... considering imposing minimum prices on textile exports and a crackdown on textile exporters' violations of labour law. This last action should happen regardless, but that's for another post.

It's a race to see who can impose the restrictions first: China or the EU/USA. So if you are wondering why your clothes were cheaper for a couple of months before they became more expensive again, this is the answer: because countries are competing over trade barriers, not on products and price.

Posted by DeLong at March 9, 2005 11:39 AM