(What’s Left of) Our Economy: How Pre-Trump Trade Policies Devastated U.S. Protective Gear Capacity

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apparel, CCP Virus, China, coronavirus, COVID 19, Fed, Federal Reserve, free trade, garments, health security, manufacturing, manufacturing capacity, NAFTA, non-durable goods, North American Free Trade Agreement, offshoring, textiles, Trade, Trump, World Trade Organization, WTO, Wuhan virus, {What's Left of) Our Economy

Recently I put up a post expressing gratitude that, despite their best efforts, pre-Trump U.S. trade policies didn’t manage to send the entire U.S. textile and apparel industries offshore. After all, companies in these sectors are the companies with the greatest expertise and capabilities in making all the personal protective equipment (PPE) crucial in the anti-CCP Virus fight.

Of course, the nation is therefore reliant for these and other medical products on countries, like China, which have responded to the emergency at various times with export bans. And in the case of pandemic-prone China, much production of all kinds was shut down temporarily because of the original virus outbreak.

Thanks to the release of the latest Federal Reserve industrial production data, it’s possible to quantify the damage done to these vital industries in ways other than the output figures I presented in that previous offering. That’s because the Fed’s monthly releases report in detail not only on increases or decreases in after-inflation output for manufacturing (and related) sectors. They also report the monthly changes in industrial capacity – the resources and facilities available to turn out various goods.

The results through last month are below. They use as baselines the month the North American Free Trade Agreement (NAFTA – which has now been turned into the U.S.-Mexico-Canada Agreement) went into effect, and the month that China entered the World Trade Organization (WTO). NAFTA’s January, 1994 onset signaled to many the transformation of U.S. trade policy into U.S. offshoring policy (see my book, The Race to the Bottom, for this argument). The January, 2002 beginning of China’s WTO membership gave the People’s Republic  overall, and its even-then-immense textile and especially apparel sectors, invaluable protection against American responses to its various forms of trade predation. (Limited safeguards versus “market-disrupting” surges in imports from China were written into the WTO agreement.)

For comparison’s sake, the industrial capacity changes for non-durable goods manufacturing (the super-sector into which textiles and apparel are grouped), and total manufacturing are provided as well:

                                                       Since NAFTA onset    Since China WTO entry

Textiles:                                              -37.05 percent              -44.05 percent

Apparel & leather goods:                   -81.97 percent              -77.18 percent

Non-durables manufacturing:           +17.06 percent                -2.23 percent

Total manufacturing:                         +75.54 percent             +10.78 percent

Clearly, the decimation of apparel capacity sticks out prominently. But although the more capital-intensive textiles industry didn’t suffer nearly as much, it fared much worse than either manufacturing in toto or the non-durables sectors overall. That’s largely because as the apparel industry disappeared, so did a prime domestic customer for textiles producers.

It’s also obvious for all these categories that although NAFTA was, to say the least, hardly a bonanza, the big trade-related damage was done by China’s WTO entry. Afterward that event has been when the shrinkage of textiles capacity accelerated, when the vast majority of the post-NAFTA apparel damage was done, when non-durables capacity gains shifted into reverse, and when total manufacturing capacity growth slowed to a crawl.

Calls are now abounding for remedies to the resulting shortages – like greater stockpiling and various tax and subsidy incentives for reshoring at least some of this production. But material in stockpiles can decay if unused too long, and companies would be foolish to spend heavily on new U.S. factories if they still face the likelihood of being subsidized and dumped out of existence by predatory foreign trade policies. As a result, there’s no substitute for stiff tariffs, and a credible national resolve to keep them in place, for ensuring that America’s health security never becomes so degraded again.

Those Stubborn Facts: The Race to the Bottom Continues in World Garment Trade

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Bangladesh, factory safety, garments, globalization, Rana Plaza, Those Stubborn Facts, Trade

Estimated cost of safety upgrades mandated for Bangladesh garment factories after April, 2013 Rana Plaza disaster: $929 million

Amount of renovations that haven’t been made: $635 million

 
(Source: “Clothing Keeps Getting Cheaper, and Factory Workers Are Paying the Price,” by Vauhini Vara, Bloomberg News, October 27, 2016, http://www.bloomberg.com/news/articles/2016-10-27/clothing-keeps-getting-cheaper-and-factory-workers-are-paying-the-price)

(What’s Left of) Our Economy: Why Obama-nomics Looks Like Importing the Workers and Exporting the Jobs

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2016 elections, Africa, apparel, California, Congress, Democrats, garments, Immigration, imports, income inequality, Los Angeles, manufacturing, minimum wage, Obama, offshoring, Republicans, TPP, Trade, Trans-Pacific Partnership, Vietnam, Wall Street Journal, {What's Left of) Our Economy

This one is so easy that it feels like piling on to write it. But if you need any further evidence that President Obama’s approach to economic policy has dissolved into complete incoherence, look no further than the Wall Street Journal‘s new article on Los Angeles’ garment industry. And it offers some vital lessons for many of his fellow Democrats, too.

As the Journal has reported, Los Angeles will be raising its minimum wage to $15 per hour in phases over five years. In response, the city’s still considerable garment manufacturing industry, which employs huge numbers of the working poor, including many legal and illegal immigrants, is threatening to leave.

It’s certainly reasonable to counter that business owners will always squawk about any cost increases, and that Los Angeles’ proximity to a fashion market that requires lots of very quick order filling will remain a big competitive advantage for a sector that needs to keep up with rapidly changing fads. It’s also reasonable to challenge Los Angeles garment makers to preserve their profitability by increasing productivity – though if they achieve this goal with more automation, employment levels could suffer at least in the short run.

But let’s look at how Obama-nomics is affecting the situation. The president has been a leading champion for those minimum wage hikes. (Most other Democrats agree.) At the same time, he’s seeking a Trans-Pacific Partnership (TPP) trade agreement that will open the American apparel market even wider to exports from Vietnam in particular, where average hourly wages in the industry as of 2013 reportedly were 53 cents per hour, and where employers – including the government – don’t have to worry about workers’ rights. Mr. Obama also favors trade deals that will boost apparel imports from other very low-wage, regulation-free regions like sub-Saharan Africa. And even though most Congressional Democrats oppose the TPP, they’ve strongly supported the Africa deal.

From the broader standpoint of Los Angeles’ entire economy and its prospects, virtually the entire Democratic party favors enormously increased immigration (and eventual citizenship for most of the current illegal population). So the city faces the prospect of a big new influx of new low-wage, low-skill foreign arrivals on top of the influx it’s already experienced, and a big exodus of the best kinds of jobs such newcomers can reasonably hope to hold.  Further, given the president’s support for this import-the-workers-export-the-jobs combination, plus the strong possibility that Democrats will retain the White House in 2016, the same fate appears in store for much of the rest of the country, too.   

And here’s the icing on this cake – as Democrats seek to focus America’s attention on wide and rising income inequality, Los Angeles already stands as one of the most unequal cities in the country, and California as the most unequal state (indicating that it’s more than a Los Angeles issue).

Not that Republicans are significantly better on trade and immigration issues – especially their Washington and Congressional leaders. But at least they’re not also peddling the false hope of big minimum wage hikes on top of their offshoring-and cheap labor-friendly immigration stances.  BTW, back in the late-1990s, I put out a short item on this very problem emerging in California (but can’t find it anywhere on line).  Plus ca change, as they say. 

 

 

 

Those Stubborn Facts: Ignorantly Hyping Fair Trade Fashion

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Bangladesh, Fair Trade, garments, manufacturing, offshoring, Those Stubborn Facts, Trade, worker safety

“Two years after a garment-factory collapse in Bangladesh killed more than 1,100 people and put a harsh spotlight on fashion-industry working conditions, Fair Trade apparel is gaining ground.”

–Dow Jones, July 7, 2015

Number of garment factories expected certified by Fair Trade USA, year-end 2015: “At least 25”

Number of garment factories in Bangladesh alone, 2013: c. 5,000

(Sources: “’Fair Trade’ Becomes a Fashion Trend,” by Andria Cheng, Dow Jones, July 7, 2015, http://www.4-traders.com/news/Fair-Trade-Becomes-a-Fashion-Trend–20655404/ and “Ready-made garments in Bangladesh: No longer a forgotten sector,” by Khadija Farhana, OECD Observer No. 299, Second Quarter, 2014,http://www.oecdobserver.org/news/fullstory.php/aid/4368/Ready-made_garments_in_Bangladesh:_No_longer_a_forgotten_sector.html) 

(What’s Left of) Our Economy: Washington’s Africa Sloppiness Shows Dangers of Fast Tracking Trade

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Africa, African Growth and Opportunity Act, AGOA, Congress, economic development, fast track, garments, manufacturing, MFA, Multifibre Arrangement, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, Uruguay Round, World Trade Organization, WTO, {What's Left of) Our Economy

Renewal of America’s trade agreement with sub-Saharan Africa isn’t the single biggest determinant of the fate of fast track authority in Congress this week, but it’s certainly in the mix. And the enormous popularity it’s enjoyed even among lawmakers generally opposed to current trade policies speaks volumes about how sloppily Washington as a whole develops trade agreements, and how the results can fail even intended foreign beneficiaries.

The Africa trade deal – created by the African Growth and Opportunity Act (AGOA) – is intended to promote economic progress on the continent by opening the U.S. market wide to its exports. Even though African countries aren’t required to reciprocate, the measure seems worthwhile, as the continent’s own purchasing power is meager at best, and its non-oil sales to the United States are miniscule as well.

But since AGOA went into effect in 2001, even supporters in academe, like Harvard University economist Robert Z. Lawrence have called its growth-inducing effects in Africa “quite disappointing.” And the reasons stem from two major and related U.S. trade policy mistakes that could be easily corrected, but that remain in effect mainly because Washington has cared much more about pretending to help the continent rather than seriously addressing its problems.

The first fatal flaw has to do with AGOA’s “rule of origin” provisions, which principally affect the African apparel production and shipments. Developing strong apparel industries is crucial to the development hopes of the AGOA countries, because as a labor-intensive manufacturing sector, clothing historically has served as a “starter” industry for developing nations seeking both higher growth and higher incomes. And the hope clearly was that, once competitive local garment manufacturing had been established, sub-Saharan Africa would be able to attract the kind of investment needed to move to from relatively simple assembly to the next stage up the industrialization ladder – fabric and other input production.

Indeed, the current lack of meaningful fabric or yarn manufacturing in most of the AGOA countries to begin with led Washington to permit them to export on a duty-free basis to the United States garments made largely of foreign-produced fabric – both from the United States and from third countries. In its first few years, AGOA did stimulate strongly growing African apparel shipments to the United States. But progress came to an abrupt halt in the middle of the last decade, The quality failed to improve – in particular, AGOA fostered almost no fabric production – because most of the non-U.S. providers of fabric for African-assembled garments showed almost no interest in its encouragement. So AGOA apparel sales to Americans still largely consist of fabric produced outside Africa, generally in Asia – including China. Consequently, Africans have remained stuck in knitting and sewing work, which adds relatively little value to their economies.

But even the growth of shipments from Africa to the United States has slowed, and that owes to Washington’s second major trade policy mistake – its insistence that a global system of quotas for third world apparel exports be abolished as part of the Uruguay Round world trade liberalization agreement. As I wrote in this 2013 article, this Multifibre Arrangement (MFA) was widely criticized as selfish protectionism on the part of the high income countries that used it to regulate foreign market access for textiles and clothing. But it also gave invaluable opportunities to the world’s least developed countries to establish niches – and indeed growing niches – in this business, mainly by limiting imports from more advanced developing countries, like Taiwan, Korea, China, and even India.

And since AGOA’s provisions remain largely unchanged, most of its economic development benefits will continue flowing to countries that need them much less. And in a final, especially cruel, irony, avowed friends of Africa who vote for President Obama’s proposed Pacific Rim trade deal will only wind up putting added pressure on the continent. For one of the biggest expected results of this Trans-Pacific Partnership (TPP) will be to supercharge U.S. apparel imports from hyper-competitive – and super low-wage and anti-union – Vietnam.

So if Congress – and the Obama administration – really wanted to help sub-Saharan Africa, they would push the World Trade Organization to restore the MFA or at least reestablish a quota system of its own, and they would rethink the TPP. That neither proposal is on the table in Washington strongly indicates that, when it comes to using U.S. trade policy to aiding developing countries, American leaders are much more interested in feeling good than in doing good. And can the same president and legislators who have so thoroughly neglected crucial AGOA-related details really be reasonably expected to produce a TPP that benefits America?

(What’s Left of) Our Economy: Why Garment Trade Remains a Deadly Race to the Bottom

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Bangladesh, factories, garments, manufacturing, Multifibre Arrangement, race to the bottom, Trade, worker safety, {What's Left of) Our Economy

More than a year has passed since the Rana Plaza factory collapse killed 1,100 Bangladeshi textile workers in April, 2013, and it continues to amaze me how even avowed champions of safer third world workplaces have ignored the role new trade policies need to make in achieving genuine reform.

The good news on the worker safety front is that no other Rana-like calamities have befallen Bangladesh, although smaller-scale fatalities continue. (In fairness, no country is free of these.) In addition, the owner of the Rana factory complex has finally been charged with “gross” violations of local building codes (he’s been imprisoned since shortly after the tragedy). Also charged has been the local mayor allegedly in cahoots with him.

The Obama administration suspended the special tariff breaks America had been extending to Bangladesh exports. Foreign (mainly European) apparel companies have promised to support stepped up factory inspections and to even pay the cost of improvements. More than 200 unsafe factories reportedly have been closed. And nearly 200 new labor unions have been registered in the country.

At the same time, by most accounts, most Bangladesh factories remain tragedies waiting to happen. The European Union still grants the country trade preferences. Violence against labor organizers – conspicuously overlooked and sometimes rhetorically encouraged by the government – seems worse. The factory shutdowns reportedly have thrown 80,000 out of work. And deathtrap workplaces remain far too common throughout the developing world – notably, in neighboring India.

In other words, from all appearances, the world’s garment industry is still dominated by race-to-the-bottom dynamics, in which apparel companies and the retailers they supply pit the world’s poorest countries against each other in a tragic competition to offer the lowest wages and the most threadbare, or poorly enforced, regulations.

Shortly after the Rana collapse, I wrote that this race will ontinue unless the world’s trading powers reverse a major mistake made in a fit of free trade extremism. Specifically, they need to restore a system of garment trade quotas that guaranteed the smallest, poorest countries a steadily growing share of rich-country apparel markets – and thereby reduced the industry’s incentives and capacity to punish third world governments for allowing higher wages and better working conditions.

Unfortunately, reinstating this Multifibre Arrangement is nowhere to be found on the U.S. or international trade agenda – strongly indicating that, despite the best efforts of unions, other activists, and even consumers and companies with a conscience, the next Rana-like accident is only a matter of time.