Because efforts to establish clearly defined bilateral trade agreements had not addressed these and other significant tensions between the apparel industries in China and the United States, the United States turned to an intermediary in an attempt to broker new regulations for trade in 2005. The need for new regulations had grown particularly acute because a previous trade agreement, the Multi-Fiber-Arrangement, which established import quotas, had expired on January 1, 2005, permitting China to “ship virtually unlimited quantities of those products to the United States” (Laws, 2005b, p. 3). The intermediary that would broker the deal was the World Trade Organization (Cass et al., 2003). The United States recognized that the World Trade Organization was its one and only bargaining chip that could be leveraged in a play with the Chinese apparel industry, as China had gained accession to the World Trade Organization only four years earlier, in 2001 (Cass et al, 2003).

China had been attempting accession for more than a decade. After the government’s pronouncement that the country would embark on a social, political, cultural, and above all, economic modernization campaign, Chinese industrialists became increasingly convinced that their future success would be staked on aggressive participation in world markets. They anticipated that admission to the World Trade Organization would benefit them, and their country, in several ways. First of all, admission to the World Trade Organization would solidify the country’s status as a country recognized as an important economic player, bolstering its reputation and complementing its membership in the International Monetary Fund. World Trade Organization membership thus represented entry into a powerful and exclusive club. Secondly, World Trade Organization membership was anticipated to have a positive impact on China’s annual gross domestic product, as this was the typical consequences for accepted countries.

Being admitted to the World Trade Organization, however, was a daunting process. China had faced numerous challenges and strident criticism and demands from those WTO member nations that vehemently opposed China’s membership (Cass et al., 2003). Once China surmounted these obstacles and was approved for admission to the World Trade Organization, its challenges did not end. As one of the most junior members of the World Trade Organization, China needed to prove itself as a worthy member of the multinational body (Cass et al., 2003). Despite the fact that the member countries had voted China into the World Trade Organization, there were still a significant number of members who remained doubtful of the country’s intentions, and who criticized its historical and contemporary trade practices (Cass et al., 2003). For these reasons, the United States felt confident that it could leverage the World Trade Organization’s power at this critical juncture, appealing to China’s desire—and indeed, its need—to prove itself as a new member of one of the world’s most powerful economic agents (Cass et al., 2003).

China, for its part, was between a rock and a hard place. Though it had wanted desperately to be admitted as a member nation of the World Trade Organization, its membership came with some unanticipated losses. An existing WTO agreement about apparel imports and exports had caused China, obliged to comply with the agreement’s terms, to experience a three percent decline in clothing exports during 2002 and an additional three percent in 2003 (Grant, 2005). The time was right, then, for the United States to gamble on a new trade agreement with China, to be managed and overseen by the World Trade Organization. The United States’ gamble paid off. Prior to a November 2005 meeting of World Trade Organization members in London, the United States sent numerous apparel industry representatives and politicians to China over the course of several months as a diplomatic courtesy and a public signal that import-export agreements for apparel would be high on the American representatives’ agenda for the World Trade Organization meeting. During the meeting, the two countries reported that they had reached a “three-year agreement aimed at reining in U.S. imports of Chinese textile and apparel products in all or parts of 34 sensitive categories” (Laws, 2005a, p. 11). Specifically, the terms of the WTO-brokered agreement granted the importing country with the right to impose safeguard limits on yearly import increases up to a ceiling of 7.5% more than the previous year’s import ratio (Grant, 2005).

Laws (2006) reported that there was an immediate quantitative impact that the new trade regulation had on the U.S. apparel industry. By gaining greater control over the quantity of imports, the United States also began to reclaim some of its own domestic production power in the apparel industry. Laws (2006) indicated that domestic production of textiles and clothing “improved slightly, increasing between 0.9 and 1.7 percent during the year after the 2005 law [sic] was passed” (p. 14). Despite Laws’s (2006) claims, which were substantiated with governmental data, it is unclear what other economic implications occurred as a result of the WTO trade agreement between China and the United States. Furthermore, it remains to be seen whether the three-year agreement, which will expire at the end of 2008, will be renewed, and, if so, whether it will be revised.

Economic Impact of Apparel Imports on the U.S. Economy: Indicators and Recent Studies
Dridi and Zieschang (2004) explain that import and export ratios, as well as the prices attached to them, are “important indicators for analyzing growth and inflation in an open economy” (p. 157). In addition, import-export ratios inform policy analysis, permitting economists and industry executives to evaluate the “international competitiveness of a country’s producers” (Dridi & Zieschang, 2004, p. 157). Finally, the quantitative relationship between imports and exports is “used for escalating the terms of international contracts and measuring and forecasting domestic inflation; for exchange rate analysis; and… estimating GDP volume, the primary summary indicator of economic growth” (Dridi & Zieschang, 2004, p. 157). By analyzing recent studies and statistical data, then, we can begin to develop an idea about the economic impact of apparel imports on the U.S. economy. The studies and data presented and analyzed below represent findings of researchers both prior to the 2005 World Trade Organization China-U.S. apparel agreements, and afterwards, which permits us to begin formulating a point of reference that we can use to evaluate the changes that might have been precipitated by the trade accord. We can also identify those variables that will be worth assessing later in the course of this study.

Writing on behalf of the International Monetary Fund, Feridhanusetyawan (2005) presented import-export data for China and the United States, among other countries, for the 2002 fiscal year. Although Feridhanusetyawan’s (2005) data set was not specific to the apparel industry, the broad trends are likely to speak to specific market sectors as well, an assumption that is made based on the findings of Law (2006), presented earlier in this chapter. Feridhanusetyawan’s (2005) data, presented in a highly readable format, allude to the sharp distinctions that defined import-export trends in the United States and China prior to the World Trade Organization accord of 2005. In 2002, China’s exports represented 26% of its gross domestic product, while imports accounted for 22% of the gross domestic product (Feridhanusetyawan, 2005).
In the same year, the United States’ exports represented just 7% of the country’s gross domestic product; however, imports represented a significantly higher percentage of the gross domestic product at 11% (Feridhanusetyawan, 2005). As an important aside, many of China’s neighbors also maintained an import ratio that was lower than their export ratio (Feridhanusetyawan, 2005). Japan’s exports were recorded at 10% of the gross domestic product while imports were 8%; Korea’s export-import ratio was 30% to 27%; and Thailand’s export-import ratio was 52% to 50% (Feridhanusetyawan, 2005). While these data do not seem to suggest that China’s neighbors are catching up and preparing to stake their own claims in the international apparel trade, these ratio patterns are encouraging for the region of Southeast Asia, if not for the United States.

Studies conducted during 2005 or reflecting data reported from that year must be interpreted with great caution. Remember that the Multi-Fiber Trade Agreement ended on January 1, 2005, and for the first half of that year, Chinese exports to both the European Union and the United States soared because all existing quotas on clothing imports had expired (Nathan Associates, 2005). China was prepared to flood the market, and it did. Therefore, the extraordinarily impressive import numbers posted by China in the first half of 2005, and especially during the first quarter of the year, may be somewhat misleading when they are compared to last quarter reports for 2005, as the former represent a concentrated effort on the part of Chinese apparel manufacturers to take advantage of a quota-less period, the length of which was not known at the time (Nathan Associates, 2005). In a comparison of first quarter reports from 2004 and 2005, Nathan Associates (2005) noted that Chinese imports in the European Union climbed dramatically. Most categories of cotton clothing posted increases that at least doubled the previous year’s rates, and some categories, including pullovers and men’s pants, experienced a six-fold increase (Nathan Associates, 2005).

Similar gains were reported for the Chinese with respect to American imports of Chinese-manufactured clothing (Nathan Associates, 2005). Again, comparing the first quarters of 2004 and 2005, U.S. imports of Chinese produced apparel increased by 14% (Nathan Associates, 2005). Also, specific clothing categories posted particularly impressive gains; in the United States, pants and shirts were briskly moving import items (Nathan Associates, 2005). Nathan Associates (2005) pointed out that China and the United States were not the only countries affected by these import-export ratio changes. As China became the number one exporter to the United States, other countries that had traditionally had solid trade relationships with the U.S., especially countries in Latin America and the Caribbean basin, began to experience negative ripple effects in their own economies (Nathan Associates, 2005). Mexico, for instance, experienced a significant decline in exports to the United States during the first quarter of 2005 (Nathan Associates, 2005). While some clothing categories posted losses of just 5%, other categories slipped dramatically, to almost 20% (Nathan Associates, 2005). These statistics were particularly disappointing for Mexican exporters because Mexico had long held a special kind of favored-nation status with the United States with regards to apparel imports (Mehar, 2002). Hong Kong and Canada, once among the top ten suppliers of textiles and apparel to the United States, also suffered major losses in the first half of 2005 (Nathan Associates, 2005). These data indicate that trade agreements do not occur in a vacuum between the two parties affirming an accord, but have ripple effects throughout the entire world economy and import-export and trade ratio relationships.

The data reported in these studies help us to understand the quantitative relationships between import and export ratios of the apparel industries in the United States and China. They also allude to some of the effects that the World Trade Organization agreement of 2005 has had on each country’s apparel industry, though more data are needed to understand the exact effects of the accord. Mehar (2002) offers what he terms an “econometric model” for understanding just these types of relationships (p. 2). He contends that in order to truly understand the nature of the relationship between imports and exports, it is important to utilize a model that can both identify what the causal variables are affecting that relationship, as well as the quantitative dynamic operating between them (Mehar, 2002). Mehar (2002) posits that there are three primary variables that determine the relationship between imports and exports: (1) the financial liquidity of the exporter; (2) the ability of the exporter to source the raw materials that are needed for production domestically; and, (3) the “magnitude” (which refers to both quality and quantity) of those raw materials (p. 2). He admits that these three variables contest the traditionally accepted theories that privilege export percentages and gross domestic product as critical variables, though he does acknowledge their importance and value as “good predictors,” particularly for clothing exports (Mehar, 2002, p. 2). While it is beyond the scope of this chapter to describe the methodology that Mehar (2002) and his colleagues developed to predict and forecast import-export ratios, the researcher wishes to note that his model offers some important considerations that will be revisited in the Methodology chapter.

Summary and Conclusion
Imports and exports, and more importantly, the balance that is or is not stricken between them, are critical indicators of the health of a nation’s economy, as well as an indicator of the nature of the economic relationship between countries. In the case of the apparel industry, China and the United States have a long history of complicated interactions and a curious interdependence that is both beneficial and damaging for each country. The dynamics of the relationship between the apparel industries in the China and the United States were preceded by a strangely similar dynamic between Japan and the United States as the close of the 19th century and the dawning of the 20th century. Specific social factors, including the expansion and increasing accessibility of transportation; the development, implementation, and enforcement of child labor laws; and the introduction of a minimum wage law, all contributed to the decline of the domestic garment manufacturing industry in the United States.
At the same time, a completely different set of social factors in China made that country increasingly attractive as a place for off-shore and outsourced manufacturing for clothing to be sold in the United States, and this despite the fact that such practices would dramatically impact trade relationships, job stability in the United States, import-export ratios in both countries, as well as the world economy at large. These variables included China’s strengthened commitment to vigorous participation in the world economy, an astute leveraging of its core resources (geographical/physical space and a massive human labor pool), and a wage structure that meant American companies could dramatically reduce their overhead and, by extension, increase their profits.

Despite the clear advantages that would be enjoyed by both China and the United States as the result of the interdependency of their respective apparel industries, there would also be significant challenges that would emerge. Poorly defined trade agreements and lax oversight and enforcement of import-export accords caused the two countries to forge a relationship based on a certain sense of mistrust, which is not particularly good for business, especially over the long-term. In addition, the expiration of the Multi-Fiber Trade Agreement on January 1, 2005 represented a boon for China and a bane for the United States, as the former took advantage of an indeterminate period without import quotas to flood the market with cheap goods. The consequences rippled out far beyond these two countries, as other apparel manufacturers, especially those that had enjoyed long-term favored status with the United States, were cast aside in favor of the incomparably inexpensive Chinese products.

Recognizing that the unchecked flow of Chinese clothing into the American market would only have negative consequences over the long-term, the United States acted quickly upon expiration of the Multi-Fiber Trade Agreement to introduce new measures that would impose safeguard quota levels to prevent continued flooding of imports. China’s 2001 admission to the World Trade Organization and its informal probationary status as a junior member of this powerful economic organization provided the leveraging power that the United States needed in order to push for stricter limits on Chinese imports. While benefiting from the low prices offered by Chinese apparel manufacturers, the United States wished to gain a greater degree of control over the amount of clothing that could enter the country. Perhaps a secondary goal was to restrict the flow of Chinese imports in order to re-establish order, equilibrium, and positive rapport with other countries that had long supplied the United States as clothing exporters.

The November 2005 agreement forged by the Chinese and the Americans at the World Trade Organization meeting did, in fact, put stricter quotas into place and imposed annual ceilings on imports for three years. The agreement will expire in 2008, after which time it is only one’s best guess as to what will happen. The revision or renewal of the agreement and any associated policies and practices related to clothing imports and exports between the United States and China should be determined based upon a careful and thorough evaluation of statistical data that offer a comparative perspective of import and export ratios for both countries both prior to and following the 2005 accord. Other economic indicators, such as unemployment data and apparel retailers’ earnings may also be taken into account to support these data. Mehar’s (2002) econometric framework may provide a useful methodological approach for conducting such analyses on data that are made available by each country’s government, as well as by international economic organizations such as the World Trade Organization and the International Monetary Fund.

This review of the literature provided the reader with an orientation to the subjects that are central to the proposed research study. While the histories of both China and the United States, their apparel industries, and the complexities of the import-export ratio and trade relationships are far more extensive than suggested here, the limitations of space preclude a more comprehensive examination of these subjects. However, the researcher believes that the reader has been armed with the most important information that will help contextualize and situate the proposed research investigation. In the following chapter, the researcher will present the methodological framework that will serve as the guide for carrying out the study.

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References

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