EU Response

The European Union struck back against America's decision to impose tariffs on steel imports with tariffs of its own of up to 26% on some steel products. It also drew up a list of American goods on which it would impose sanctions worth $2 billion if America refuses to compensate the EU for its steel measures. America, like Europe before it, threatened action through the World Trade Organisation.

 

More on free trade

Does the Bush administration favour free trade? Not in the Carolinas

GEORGE BUSH spent much of last weekend in Peru and El Salvador, touting the virtues of free trade. The message was rather different at a regional summit to discuss the plight of America's beleagured textile firms in Gaston County, North Carolina. “The textile industry has been offered up on the mantle of free trade,” intoned the governor of South Carolina to loud applause. “Textiles have been nothing but a pawn in US foreign policy,” roared a textile titan. “We need to be king.”

Rhetorically, at least, the Bush administration seems happy to oblige. “Know that you have a friend in us. Know that you can trust us,” Don Evans, Mr Bush's commerce secretary, told textile lobbies last week. Speaking at the Gaston summit, a man from Mr Bush's trade office said nothing about freer trade; instead he acknowledged similarities between global textile markets and steel ones. Small wonder the assembled textiles honchos agreed that Mr Bush's people offered their best hope of help for years.

At one level, the contradiction between Mr Bush's words in Latin America and his officials' tone at home is hardly surprising. Commerce secretaries are paid to offer soothing words to American businesspeople. But after Mr Bush's decision to slap tariffs on steel and now lumber (see article), the president's commitment to free trade is already in question. Will textiles expose it as a complete fraud?

No one doubts that the American textile industry, which employs just over 400,000 people, mainly in the south-east, is in deep trouble. A gradual decline over the past two decades has become a headlong rout since the Asian currency slump of 1997. Over 180,000 textile workers have lost their jobs since then—more people than the entire steel industry still employs. The strong dollar and the domestic slowdown have proved a lethal combination. Last year alone, 116 mills closed.

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Unemployment in Gaston County, for instance, has doubled to 10%, and the towns are dotted with empty mills. Those factories that survive have replaced workers with machines. In the Gastonia plant of Parkdale Mills, a leading yarn maker, a handful of people now oversee the robots. The factory employs 75 people today; a decade ago it had three times as many.

And it will get worse. Just as the American shoe-making industry has disappeared, so the American textile industry (apart from a few high-tech producers) will have limited prospects, if freer trade becomes a reality. It survives only because in America, as in most rich countries, textiles are heavily protected. The average American tariff on textile and clothing imports is 17%; the top tariff is much higher. Textiles are the only big manufacturing industry that still follows global quota rules. That quota regime is due to end in January 2005. The question is what happens then.

As well as supporting freer trade in the Americas, the Bush administration was a driving force behind the Doha agenda for global trade talks. There it was agreed that rich countries would cut their remaining tariffs, “in particular on products of export interest to developing countries”. Rich countries are supposed to cut their duties (relatively) more than poor countries. Doha also commits America to reviewing international anti-dumping rules. This could be important for textiles, because once the quotas go, the American mills could well follow the steelmen and use anti-dumping rules to stop imports.

Already Mr Bush's people are backtracking. His main textile-trade negotiator is currently mulling the introduction of textile quotas on Vietnam, a country not covered by the global quota system. Mr Bush recently refused to increase quotas or cut tariffs for Pakistani textiles. After frantic lobbying from the Carolinas, all he could offer Pakistan was the possibility of switching quotas to allow an extra $142m-worth of imports this year (less than a tenth what his ally had asked for). And the White House has not objected to demands from Republicans in textile areas for Congress to tighten rules in agreements with Caribbean countries.

Mr Bush's defence is that, individually, each of these actions is fairly small (which is certainly true when compared with slapping tariffs of up to 30% on steel). Also it is claimed that helping the textile industry in the short term is necessary for the broader goal of freer trade. In particular, the administration only managed to get Trade Promotion Authority (TPA) through the House of Representatives by one vote. That vote came from a textile Republican from North Carolina, Robin Hayes, who extricated many of these commitments as the price for his vote. Until TPA has passed the Senate, the Bush administration cannot risk upsetting the textile lobby.

The realpolitik does not end there. The Republicans' slender hold on the House of Representatives is threatened in the November elections, and a few textile Republicans look vulnerable.

Such calculations bode ill for America's willingness to open up its textile industry. The elimination of global quotas, after all, is due in January 2005, just after the next presidential election. Worse, all this muttering about helping the troubled mills masks the fact that the administration is actually dragging its feet over offering more help to displaced textile workers.

The textile industry is one of the biggest beneficiaries of Trade Adjustment Assistance, a federal programme that helps retrain and support workers whose jobs have disappeared as a result of import competition. Around 20% of all adjustment money over the past two decades has gone to textile workers.

As part of the trade-promotion package, Senate Democrats are keen to expand adjustment assistance from the $400m a year it costs today to $1.2 billion. The idea is to include explicitly “secondary workers” (those who lose their jobs because their factory supplies another firm that has gone under) and also expand the adjustment assistance to last longer and include a subsidy for health-care cover.

Both expansions matter hugely to the textile industry. In Gaston County many of the bankruptcies have been yarn makers, machine-tool makers and other suppliers to the textile mills. Longer-term assistance is important too. Four out of ten people in Gaston County do not have a high-school diploma. Retraining such people takes time. Yet rather than expand, and improve, trade adjustment, the Bush administration last week offered a proposal that ignored the issue of secondary workers entirely, and offered nothing on health care. Advocates for trade adjustment dubbed it “a disgrace”.

Mr Bush may eventually be forced to accept more adjustment assistance as a price for getting TPA. But in textiles at least, this administration is too keen on petty protectionism and too stingy to pay the price of truly freer trade.

Link: http://www.economist.com/world/na/displayStory.cfm?story_id=1059386

The first post is from The Economist - email subscription too.

 

Our country is really in trouble. There is an economic cancer that is growing inside. I hope our government does not get distracted - otherwise, a lot of people will get hurt. Shades of depression era is coming....it is like Enron....