Until recently, international trade was seldom the topic of popular conversation. But the burgeoning trade deficit, now approaching $150 billion per year, has changed all that.
The impetus to improve our trade deficit is good, but we must avoid the lure of simplistic protectionist proposals. The situation in the U.S. textile industry is a case in point.
Employment in our textile and apparel industry is down by more than 234,000 jobs since 1979. Believing that those jobs were lost because of the growth of foreign imports, more than 290 representatives and 54 senators have cosponsored the Textile and Apparel Trade Enforcement Act. The measure would reduce the quotas on such imports by about 40percent.
A look at the facts reveals that the industry's problem is not foreign competition and that a protectionist reaction would cost U.S. jobs, raise prices for the consumer and undermine the U.S. trade position worldwide.
If protectionism were the solution, then the textile industry would have no problems. It is already heavily protected by more than 300 import quotas, and the average tariff for textile and apparel imports is about 22 percent, more than four times the average tariff for any other U.S. industry.
The reason textile jobs are down has less to do with the impact of foreign imports than with technological innovation. Labor productivity in the textile industry has increased by 5.2 percent per year compounded between 1974 and 1982. This increased efficiency has enabled the industry's domestic production to increase (in 1972 constant dollars) by 7 percent between 1980 and 1984, while at the same time reducing its employment by 10 percent.
Passage of the Textile and Apparel Enforcement Act wouldn't put more Americans to work; instead, it would cost U.S. jobs overall. According to a study conducted by the International Business Research Corporation, reducing textile and apparel imports could result in 36,000 more jobs in textile manufacturing. However, the same study estimates that the curtailment of textile and apparel imports would cost nearly 58,000 jobs in the apparel retail industry -- resulting in a net loss of 22,000 U.S. jobs.
Limiting imports would also hurt American consumers. Competition helps keep clothing prices down. Reducing competition would result in price increases that, according to some experts, would cost American consumers a total of $14 billion per year. Low income consumers would be particularly hard hit, since a larger percentage of their income is needed for clothing.
Finally, the Textile and Apparel Enforcement Act is a blatant violation of existing international trade agreements. It would cause the United States to abrogate 34 bilateral trade agreements now in effect.
The import restrictions in the bill are applied in a discriminatory fashion. They limit imports primarily from Pacific Rim countries such as China, Hong Kong, Taiwan and Thailand. The targeted countries account for more than one-half of our textile and apparel imports.
However, the growth rate from these targeted countries has been less than one-third of the growth rate of imports from the other countries, which are excluded from restraint by the bill. These countries include such major trading partners as Canada, Mexico and the members of the European Economic Community. This discriminatory treatment of our Pacific Rim trading partners would reduce their hard currency, and, therefore, their ability to make purchases from the United States.
Rather than establishing such protectionist measures, we must maintain a fair and controlled world trading order in textiles. We already have a vehicle for this -- the Multi-Fiber Agreement -- which has been an effective regulator of bilateral textile trade for years. The existing system of quotas was set up under the MFA, and if it needs to be improved, we should enter into negotiations to improve and extend the MFA rather than taking unilateral action to undermine it.
In addition, we must evaluate the impact of government policies on the ability of U.S. companies to compete in world markets. For example, the debate over tax reform should focus primarily on its impact on the cost of capital, investment, research and development and education in the United States, all factors that are critical for increasing productivity and competitiveness.
Most important, we must recognize that our fiscal and monetary policy is our most powerful tool to help U.S. industry compete. The overvalued dollar, caused in part by our out-of-control federal spending and enormous federal budget deficits, has had a devastating effect on the U.S. textile industry. From 1980 to 1984, when the trade-weighted value of the dollar increased by 58 percent, textile and apparel imports grew rapidly. Conversely, from 1973 to 1977, a period when the dollar was falling, imports of yarns and fabrics decreased.
If Congress really wants to reduce the textile trade deficit, it should take the tough actions needed to make significant reductions in the federal budget deficit. The budget Congress passed before recessing just doesn't do the job.