As in the past, large majorities in both houses of Congress are likely to pass a bill providing new protection for the textile industry. Such votes suggest widespread popularity for tighter textile restrictions, but it seems unlikely that most legislators -- not to mention the American public -- have carefully considered the massive costs and minimal benefits of this protection.
Existing tariffs and quotas raise import prices by 25 percent for textiles and 50 percent or more for apparel, and drive up prices of domestically produced apparel by an estimated 23 percent. As a result, consumers pay $20 billion annually (conservatively estimated) in added costs. Yet few if any jobs are created for the economy overall, because macro-economic policy determines total employment opportunities. Instead, protection earmarks for textiles and apparel approximately 200,000 jobs (at a cost of some $100,000 each) that would otherwise shift to alternative industries -- an expensive reshuffling the public would seem unlikely to underwrite consciously.
The burden of this protection is borne disproportionately by the poor. The poorest 20 percent of households pay an estimated 3.6 percent of their income for protection costs in textiles and apparel, while those in the 20 percent to 80 percent brackets pay approximately 1 percent. Because protection increases profits of firms and their owners, it increases income of the top 20 percent of families by 0.3 percent. Thus the impact on income distribution is clearly regressive.
Textiles and apparel are actually in much better economic health than might be expected from the debate. Unlike such industries as steel and footwear, textiles and apparel have not experienced major declines in production. Profits relative to capital have been consistently high in apparel, and profit rates were above the manufacturing average in textiles in 1986 as well. While the number of jobs has declined from its 1973 peak by 31.8 percent in textiles and 19.1 percent in apparel, growth in labor productivity rather than imports has been the main cause. And although imports have risen rapidly in the past four years, the increase was closely associated with the overvalued dollar, and the decline of the dollar should bring a major deceleration in import growth.
The textile sector had a trade surplus in 1980, and even today the ratio of imports to consumption remains at only 9.5 percent. The capital- and technology-intensive nature of textiles makes the sector internationally competitive at an appropriate exchange rate. In contrast, apparel is labor intensive and difficult to mechanize, and the United States does not have a natural comparative advantage. Even so, the import/consumption ratio correctly measured is still only 31.1 percent in apparel, rather than 50 percent or higher as suggested by some.
Textiles and apparel have enjoyed special protection since the early 1960s on the justification that they would adjust during temporary import restrictions. While the textile industry has made major progress, it still receives special protection. The apparel sector has failed even to reach the manufacturing average in productivity growth, and its cutbacks in employment -- adjustment through downsizing -- have been far more limited than those in Europe and Japan (in the range of 50 percent) or in other U.S. sectors such as steel and footwear (up to 60 percent).
Critics have charged that the Reagan administration failed to implement restrictions appropriately during the import rise of 1980-86, but the administration actually took several tightening measures. In 1986 especially it closed off much of the remaining flexibility by extending coverage to excluded materials, negotiating bilateral agreements with the big three Far Eastern suppliers that permitted only 1 percent or lower annual growth, and replacing surveillance treatment with explicit quotas.
The proposed Textile and Apparel Trade Bill of 1987 would replace "voluntary" export quotas with global import quotas and permit annual quota growth of only 1 percent. This measure would close off the existing flexibility for import growth through geographic diversification. For the first time, it would restrict imports from Europe and Canada, ensuring retaliation. Over the next decade, the average cost of the new protection to consumers would be $7 billion annually (at 1986 prices).
It would be far better to reverse trade policy toward liberalization. Even with gradual elimination of special protection over the next 15 years, the resulting pace of employment reduction would be well below the rate of natural attrition from retirement and voluntary quits. Adjustment assistance could cushion the transition for existing workers. Trade policy should protect people, not positions.
To encourage reciprocal liberalization by foreign suppliers, as well as parallel liberalization of markets in Europe, it would be possible to limit the benefits of liberalization to members of a new Agreement for Open Trade in Textiles and Apparel. Countries such as Korea and Taiwan would only become members (and thus eligible for U.S. liberalization) if they pledged liberalization of their own markets, in the first instance in textiles and apparel but also more broadly. A longer timetable for liberalization would be permitted for lesser-developed countries and those with severe debt problems. Developing countries, in turn, would make their own import liberalization available to exports from European and other industrial countries only if these countries also joined the program and liberalized their own textile and apparel imports. Such a program should be negotiated in the new Uruguay Round of multilateral trade negotiations.
The writer is a senior fellow at the Institute for International Economics.