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page 12 THE MICHIGAN REVIEW
March-April, 1987
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The Flaws of Protectionism: The Textile Industry by Paul Seltman
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A highly protective policy for the textile industry cannot accomplish the objectives of its supporters and can prove to be more destructive than constructive for both the American and international economies. For the past three years, there has been a heated debate over whether textile firms in the United States should be protected from their foreign competitors. On August 6, 1986, the House of Representatives upheld President Reagan's veto of !pe Textile and Apparel Trade ' Enforcement Act, which, if passed, would have placed massive restrictions on American imports of textiles and clothing. This was not, however, a complete victory for the free trade camp; the same arguments between protectionists and those in favor of free trade will continue, and so wil1 the concessions which each side must make along the way. The cry for protectionism in textiles has centered around the Textile and Apparel Trade Enforcement Act, which was introduced by Representative Edgar L. Jenkins (D-Georgia). This bill's intent was to decrease textile and apparel imports from a dozen countries to below their 1983 levels. Jenkins and others ' felt that quotas were not doing a sufficient job since they are easily avoided. For instance, Hong Kong manufacturers (quota: 14 million wool sweaters annually to the United States) were having their sweaters knit in China (quota: 3.2 million wool sweaters annually to the United States) where labor costs are seventy-five percent less. The sweaters were then shipped back to Hong Kong for final assembly and were charged to Hong Kong's quota. So, China has been able to exceed its import quota to the United States while Hong Kong has remained happy with their lower costs of production. For this reason, one measure of the Jenkins proposal was designed to close this loophole: for quota purposes, the country of origin is considered to be where the material undergoes a " substantial transformatio"n" or "where the goods are cut to shape." This was intended, in the case of the example, to shift the quota charge from Hong Kong to China. The other primary measure of the proposal was to tighten the procedures on the exporting and accounting of shipments. Jenkins introduced this
bill to aid what he considers to be an ailing textile industry. Protectionists believe that the United States textile manufacturing businesses are faltering. Representative Jenkins claims that the industry has been devastated by Asian textile imports and that 300,000 jobs have been lost. According to Representative Joe Kolter (D-PA), the 1985 imports "captured fifty percent of the domestic market," and the growth rate of textile imports has averaged nineteen percent since 1980. However , Congressman Les AuCoin (D-Oregon) countered Kolter's claims with statistics which would seem to eliminate any fear of the downfal1 of American textiles. From January through May 1986, textile exports rose thirteen percent, and apparel exports rose nineteen percent. In the first half of 1986, textile industry employment rose four percent; and in the first quarter, profits doubled for both textiles and apparel. In the past several years, there has been an overall decine in employment in the textile industry. Protectionists argue that further tariffs and quotas are needed to preserve jobs. After all , factories are able to keep more people on the payrol1 when they sell more of their product at an even higher price.
Yet, a free trade supporter insists that if a company cannot keep up with the competition in the world market and job losses are incurred, resources are then liberated for more productive activities. The labor and capital of a faltering firm can always be put to more efficient use somewhere else in the economy. As a matter of fact, a 1979 study in Canada showed that close to seventy-five percent of displaced workers find alternative employment. Nonetheless , the protectionist camp claims that tariffs and quotas protect jobs "efficiently," indicating a proper transfer of the extra-charged money from consumers' pockets directly to the aid of the textile companies. Despite this claim, the free traders argue that only some benefit is transferred to the textile firms while the rest is given to the foreign textile exporters. Since they are deprived of the chance to compete for a larger share of the market, they raise their prices to achieve the greatest protit margin allowable under their restrictions. Jobs may be saved, but not , without bearing a cost of some sort. Another type of cost incurred by saving jobs through the protection of the textile industry is the direct cost itself which is passed on 10 the con-
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sumer. AuCoin referred to the Jenkins bill as "a discreet way of imposing a tax on the American consumer," namely a rise in price of clothing. The Retail Industry Trade Action Coalition also prtdicted that consumers would have to pay seventy thousand dollars for each thirteen thousand dollar job saved by the bill. These figures correspond to the price increases and tariffs necessary to keep textile firms "competitive" in the world market. Protectionists become indignant over the consumer and free trade supporters' cofnplaints of higher prices and point to a "lack of compassion." A higher employment level should be more important than the few extra dollars that consumers will have to pay ' with greater trade restrictions. Where is the American consumer's sense of patriotism and commitment to an industry which is drowning in imports?' Also, consumers should not forget that textile workers are consumers, too, and need money to buy their own necessities. If these workers cannot support themselves because they have. lost their jobs, the growth of the economy slows down-the unemployed must be paid compensation, and they no longer contribute as much to the gross national product. However, AuCoin still argues on behalf of free trade. When peoples' jobs are "on the line," an industry must fight back with greater efficiency of production ; and he feels that the textile incWstry has begun to do so. Still another issue which will never be resolved between the two camps because of differing ideologies is the degree of productivity of the industry and. hence. to what ex'tent it deserves protection . Roger Milliken of Milliken and Co., the third largest tirm in the nation's textile industry, wants import growth restricted at six percent a year. Milliken states, .. We are competing with industries that are being subsidized by their governments in order to get hard cash." He is disturbed because he does not feel that see page 1S
Bitten by the Presidential ... vh, bat .
Paul Seltman is a Sophomore in LSA and an Executive Editor of the Review.