The ending of the 30-year-old Multi-Fibre Arrangement's textiles quota system on January 1 has resulted in a surge of Chinese exports and increased American pressure on China to revalue the yuan. This comes amid accusations that Beijing is responsible for the US trade deficit by 'manipulating' its currency. Just how this 'manipulation' has been achieved when the exchange rate has remained unchanged for a decade is not explained. Last Friday, Alan Greenspan, chairman of the US Federal Reserve, said a revaluation of the yuan would not necessarily help reduce America's trade deficit. 'Indeed, it's probably quite unlikely,' he said. This, he explained, was because US companies were likely to turn to other countries, such as Thailand or Malaysia, for goods, rather than to domestic producers. 'So, essentially what we will find is we're importing from a different area, but we will be importing the same goods.' The same thing is likely to happen if textile quotas are reimposed, probably to previous levels. To make up for the loss of these additional Chinese goods, US importers would have to go to other low-cost countries, like India. They are unlikely to turn to high-cost producers in the US. Indeed, as Pietra Rivoli, of Georgetown University's McDonough School of Business, wrote, trade protection is 'the enemy rather than the saviour of the US and European textile industries'. She explained that the quota system, which was first imposed on Japan, 'hastened the movement of the industry to locations such as Hong Kong'. When quotas were imposed on Hong Kong 'production again shifted in response, this time to countries such as the Philippines and Sri Lanka'. In this way, quotas not only failed to keep production in rich countries, they 'accelerated rather than slowed the globalisation of the industry'. Similarly, quotas forced developing countries to move up the value chain, thus competing directly with US producers. Nonetheless, American politicians are bashing China and calling for penalties to be meted out unless Beijing revalues its currency. In a recent editorial, The New York Times said: 'This is protectionism raising its ugly head ... Worse, it's based on a misunderstanding of both China's financial situation and the cause of American economic woes. America's lack of savings ... is the biggest contributor to global imbalance, making it necessary to 'import' billions of dollars of foreign capital daily to cover our budget and trade deficits.' On May 18, the Bush administration, bowing to pressure from manufacturers, announced new limits on imports of clothing from China, covering categories such as trousers, underwear, shirts and yarn. It can do this because, when Beijing joined the World Trade Organisation, it agreed to accept a 'special safeguard' allowing its trading partners to impose quotas until the end of 2008 in case of market disruption, even though quotas against all other countries would have ended. EU Trade Commissioner Peter Mandelson said on Friday at the World Economic Forum in Jordan that the European Union did not want to restore quotas, but he called on Beijing to take steps to manage a slower transition to open markets. Laura d'Andrea Tyson, president Bill Clinton's national economic adviser, in a recent article in Business Week headlined 'Stop scapegoating China - before it's too late', said that 'blaming China for the plight of American workers, while predictable, is wrongheaded. And adopting protectionist policies against China is downright dangerous'. Her prescription? Americans, she said, 'must increase household savings', while Chinese 'must foster more consumption' to reduce reliance on exports for growth. That is very good advice indeed. Hopefully, people in the US and China are listening. Frank Ching is a Hong Kong-based writer and commentator frank.ching@gmail.com
