April 18, 2005

Chinese Dominance of Textiles: Winners and Losers

Wal-Mart eliminates jobs in the U.S. because of its ability to get suppliers to shift production to lower cost areas. On the one hand, the U.S. has handled this in a pretty robust way. U.S. consumers have benefited from higher real incomes, and displaced workers, while feeling economic pain, have mostly shifted successfully to other work that supplies the additional purchasing power of the domestic and international consumer.

On the other hand, many developing nations are not handling this at all well.

Ivan Janssens discusses in detail the winners and losers of free-trade in textiles. The losers are those in nations whose governments pretended that industry protection created a real comparative advantage :

The real losers are elsewhere. The real losers are the textile workers in developing countries like Egypt, Turkey, Mexico and the Philippines, Bangladesh, Jordan and many African states. They used the textile sector as a major development tool, pushed that way by preferential trade agreements that gave textiles produced in those countries preferential access to developed countries and which assured their share in the world market.

The result is that those countries were �locked-in� into a sector which turned out to be uncompetitive. And it probably led to a less diversified economy. If so then the ultimate cause for all their troubles will have to be found in the preferential trade agreements themselves and not so much in their abolishment.

Related to this is that U.S. trade policy especially as conducted under the Bush-administration could also be a major loser. In the past years the Bush-administration has chosen to follow the road of bilateral and preferential trade agreements as well, bypassing as much as possible multilateral options like that of the WTO. This could all be well come tumbling down

UPDATE: In a later post, Ivan suggests that China success is partly the result of engaging in open trade, not unfair trade. He also notes that China imports from even lower-wage countires and does NOT complain:

Note the fact that the growth of China�s imports is mostly the result of products coming from other East-Asian countries and from commodities (oil...) coming from Africa and Latin-America. As a result many countries in Africa have posted their best economic growth rates in decades. Those countries in Africa have even lower wages but China is not complaining. So why should we?

Posted by Kevin on April, 18 2005 at 09:24 AM