Thursday, April 19, 2007

Bush's Threadbare Chinese Quotas

Limiting imports of bras and robes won't hurt China much -- nor will it help the almost nonexistent domestic industry

Now that the Bush Administration has slapped quotas on Chinese robes, yarn fabric, and bras, is it time to rush out and stock up on frilly foundation garments and cheap silk robes from the Middle Kingdom? Relax. The Nov. 18 decision may alarm free traders, who think it reveals a willingness by the Bush Administration to elevate politics over sound economic policy. But the quotas will barely make a dent in overall textile exports from China. The heated reactions from lobbyists on both sides of the issue are really just Washington's version of grand opera.
Beijing denounced the move "with deep regret," and Chinese exporters linked the action to next year's Presidential elections. Beijing even hinted that China might challenge the move before the World Trade Organization, where the U.S. has suffered a string of losses.

ATTRACTIVE FIGURES. That's unlikely, however. Let's look at the numbers, which show how dominant Chinese imports have become since the U.S. removed quotas on Chinese-made bras and robes in 2002. Bra imports jumped immediately from 38.4 million the year before to 127.2 million. That 231% increase gave China a 24% share of the U.S. market, up from 9% the year before. This year, China's market share climbed to 33%. The increase in another import category, robes, was even larger -- 540%.

So, to rescue the U.S. industry from this onslaught, the Bush Administration would have to roll back the quotas on China to the pre-2002 level. But that's not what's happening. The reimposed quotas are on the new base, plus an additional 7.5 percentage points. So even with the new figures, China could enjoy a 40% share of the U.S. bra market. No need to rush off to Victoria's Secret (LTD ) or Bloomingdale's (FD ) just yet.

And China hasn't got much to gain from a challenge in the WTO. To gain admission in late 2001, it had to agree to extensive economic reform. But it also had to agree to allow the U.S. to impose emergency quotas and tariffs on its exports of clothing and textiles until 2008 in the event of huge export surges to the U.S. In return, Chinese negotiators wisely cut a deal that makes American retaliation essentially meaningless. Any new quota would have to factor in the import surge and add it to the previous quota.

Finally, even if Chinese bras were banned from the U.S., it wouldn't help industry here. Bra production in the U.S. has almost disappeared anyway. Even before the quotas came off on China, foreign manufacturers had captured 85% of the U.S. market in 2001. As trade wars go, this one is already lost.

Magnusson covers trade policy for BusinessWeek in Washington
Edited by Douglas Harbrecht