China and Protectionism

The Chinese minister of trade Bo Xilai was in Paris yesterday. Most likely this is simply a happy coincidence, but the timing couldn’t have been better. The issue of Chinese textile imports has become one of the issues in the French referendum, and minister Bo was conveniently available to make all the right gestures:

“We want to soften the shockwave that there could be from the rise in Chinese textile exports,” Bo told a news conference after talks with French trade minister Francois Loos…”It is a temporary phenomenon and this phenomenon will weaken or disappear”.
Source: Reuters

The EU, as is by now well known, has recently been asked by France (along with a number of other member states: Spain, Italy, Greece) to take emergency measures to limit textile imports from China. EU Trade Commissioner Peter Mandelson has so far offered a sympathetic ear but to date has taken no concrete steps.

Back in China they have appointed a vice minister of commerce as international trade negotiatior. The apointee, Gao Hucheng, is reported to be a fluent French speaker.

So what is all the fuss about? Well some years 10 ago, when the ground rules were established for China’s entry into the World Trade Organisation, it was also agreed that starting from January of this year quotas on Chinese textile imports would also be lifted by the EU and the US. I mention the fact that this was several years ago since this detail is important. The textile industry and the respective governments in the various affected countries have had some time to prepare for this eventuality.

Certainly some of the numbers being bandied about for the increase in imports are striking (eg here in Spain the textile industry is talking about 500% increases in some items like jumpers and trousers) but what is not clear is how much of this is a real increase and how much a redirection of imports which were previously shipped through Singapore and Hong Kong to get round the quotas, and which now come direct.

In this sense Bo Xilai is undoubtedy right: the dramatic increase is certainly a temporary problem and things will certainly settle down later.

Of course the anti-China lobby wax long and loud about all the imperfections and inadequacy of the Chinese political and economic system, and many of the things said are not without foundation. However the question of trade ‘irregularities’ is a case of ‘let he who is without blemish throw the first stone’. As the Economists point out in an article that is well worth reading EU and US politicians have a tendency to treat China as a market or a non-market economy as best suits the argument.

Equally China recently put in an order for 30 planes from airbus including 5 of the new A380s. It should not escape our notice that at the same time as this purchase is being agreed the EU and the US are in a furious row about alleged subsidies and tax breaks for Airbus and Boeing respectively.

At the end of April the WTO ruled that the EU was operating illegal sugar subsidies whilst the US has recently had similar problems with cotton subsidies.

Let’s be clear here, I am not saying that there is no case to be made about unfair competition in the case of Chinese textile exports, I’m just saying that they are not alone in trying to use the rules to suit their purposes. I am also saying that administrations in Washington and Brussels, whilst genuflecting in the direction of the political gallery, will undoubtedly continue to move forward with increased trade with China, and will attempt by every means to resolve any specific points of tension by talking. There is simply too much at stake. As I indicated yesterday growth in the global economy is today supported by two pillars: the US consumer and economic development in China. Kick away either of these pillars too abruptly and the consequences would be decidedly unpleasant for all.

It is for this reason that, for all the talk, I personally don’t anticipate any sudden and dramatic rise in protectionist measures in the near future. Growing protectionism would undoubtedly risk economic crisis. Of course were a crisis to come for other reasons, then there might be every reason to expect protectionism as a response.

Postcript: after writing this I have seen that the FT today is carrying interviews with WTO leadership frontrunners France’s own Pascal Lamy and Carlos P?rez del Castillo from Uruguay. Both are equally explicit in condemning the ‘textile scare’. Amongst the reasons for this will be their awareness of the importance of trying to make some progress this year on the ‘Doha round’ of trade negotiations and the importance of some successes in this direction for all of us. Clearly getting bogged down in this problem would do nothing to bring a Doha agreement any nearer.

In separate interviews, Pascal Lamy of France and Carlos P?rez del Castillo of Uruguay said western nations could not complain that they were facing a crisis when they had been given 10 years to prepare for the worldwide lifting of quotas, which, since January, has allowed China to boost its clothing exports. The French government has been leading calls for Brussels to act to restrict Chinese imports, but Mr Lamy, a former EU trade commissioner, said: ?It is not the law of the jungle and the WTO rules were clearly set.?

?Why are some politicians now not recognising that fact?? he asked. ?I can see two explanations: either their memory is too short or they know that perfectly well and pretend to be surprised, which is frankly a sign of hypocrisy.

?This idea that everybody is now taken by surprise and this is the fault of Brussels is clearly not the right reflex.?Mr P?rez del Castillo also said he was against imposing export restrictions rather than adjusting to China’s improved efficiency.
Source: Financial Times

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “China and Protectionism

  1. While politicians in countries around the world posture and indulge in power struggles, supported by the individuals and organizations that have money, it is the common working people in France, in the U.S., and in many other countries, even China, who are losing. These are people who, for all their lives, have worked to earn as decent a living as they could, some building small companies that provided good jobs and wages to others. Up until the last several years, countries supported their own businesses, and citizens worked to build wealth, confident that they would be rewarded and supported for their hard work. This is not the situation anymore. Consumers cannot continue to consume when they have no job, and more and more individuals are finding themselves in this situation. Even the Chinese workers are receiving little for their individual efforts. On top of it, China’s leaders are starting to press their economic advantage. I fail to see how this situation is going to bode well for the vast majority of individuals world-wide in the future, both in terms of freedom and quality of life, regardless of trade agreements, protectionism, lack of it, or any other political maneuvers.

  2. “have worked to earn as decent a living as they could, some building small companies that provided good jobs and wages to others.”

    I’m sure Deborah that this is true. But unfortunately if there is one thing that is constant in our human condition it is that we are permanently buffeted by processes of change. So unfortunately what we work hard one day to build up, only gets knocked down the next. This has been with us from the start. Capitalism, or whatever, has changed nothing in this sense.

    The German philosopher Heiddeger said we are ‘thrown’ in the world. That about sums it up for me. It is an existential condition, and there really isn’t much we can do about it.

    I put things like this since your plea really seems to come from the heart, and not from any particular concern with any particular decision. It seems a more general malaise which preoccupies you.

    Of course we may find ourselves enraged by things we don’t like, but if there is nothing really to be done, then that inner rage will only eat us up. We only end up harming ourselves allowing ourselves to be lead by these feelings. In this sense some reconciliation with reality is not only desireable but necessary.

    Yes the globalisation processes traversing our planet are producing changes in the lives of people who do not understand were these changes come from. Is this unjust: yes, in a certain sense it is. Is there anything to be done to stop this from happening: I doubt it.

    If we all close ourselves off from each other not only will we lose the benefits of richer communication, we will also be poorer to boot.

    I’m afraid all those politicians who have so lost your confidence are all we have. The difference between the EU or US citizen who loses their business or their job as a result of a globalisation process and those poor people in Indonesia who lost everything in the wake of the Tsunami, is that we have errected institutional structures backed by law and political processes to give us some protection. This, I humbly submit is where you need to look if you, as you seem to suggest, are one of those adversly affected by globalisation.

    “Even the Chinese workers are receiving little for their individual efforts.”

    It may be little, but it’s a lot more than they previously received.

  3. I know some textile executives. Every time is see them they talk about “free AND fair trade”. I then always ask what is so fair about withholding consumers cheap textile products and about putting poor Chinese textile workers out of a job. If they talk about fair do they think about the real losers? The textile workers in countries like Bangladesh for example? Of course not. They talk about cheap government backed loans for the Chinese textile industry, conveniently forgetting that in a country like Belgium the government still has participations in own companies. Why is it that when we hear talk about “unfair” trade we never here about or from the real losers? Take the decision by the European Commission to launch an investigation into Chinese textile imports to the EU. The only parties invited are manufacturers, producer associations in the EU, suppliers, traders-importers, exporters and industry users. Not consumers, not Chinese textile workers or workers in other developing countries. Talk about unfair practices!
    Of course they say, we only want temporary measures, until China stops subsidizing it’s industry. But it’s only five months ago that the earlier “temporary” measures were lifted. They are seeking permanent protection it seems.
    Finally, we can question the fact that indeed much has changed. here is a French textile trader:

    “Some industry executives, however, disputed that much had changed. They argue that with the scrapping of quota controls, firms that once disguised their China-made goods as Hong Kong, Macau or Taiwan exports are simply reporting the real country of origin.

    “A large part of this increase is just a switch from declared `Hong Kong origin’ to `China origin’, rather than an actual increase in China manufacturing,” said one French textile trader. “China quotas used to be more expensive than Hong Kong quotas, so people used Hong Kong quotas for goods made in China. What you see is just the reality that used to be the case for many years.” As evidence, the trader argues that mainland logistics firms have not seen any large rises in textile shipments from China in recent months.”

  4. “we can question the fact that indeed much has changed”

    Yes, I was suggesting this in the post. In general across South East Asia this is the line most people are taking.

    Incidentally, this piece in the NYT:

    “For Leon Liu, a manager of the Xingan Quanyi Bamboo and Wooden Products Company, a manufacturer of wooden coat hangers for hotels and expensive retailers, a more valuable yuan will mean that bamboo grown near the company’s factory in Rong Jiang Village in southernmost China will become too expensive. He is considering wood imports from Indonesia, and possibly even opening a hanger factory there.”

    Of course, you can see from my currency post that I don’t imagine any yuan ‘float’ will be that rapid or that dramatic, but the underlying point is sound: as the yuan rises China will itself ride up the value chain, and eventually much of the ‘low value’ work can even leave China in search of lower wages.

    Re-localisation is an ongoing process.

    In general I wholeheartedly agree with what you are saying.

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