The wages of trade

December 26, 2004

COME THE NEW YEAR, 30 years of U.S. import quotas end for textiles, and in advance of this big step in trade liberalization, political pressures are rising. U.S. textile-makers say this will kill their already damaged industry, and seek an 11th-hour reprieve. But they've had a decade to prepare, and Washington now should focus on retraining textile workers - not on protecting production of T-shirts and towels from a feared tide of cheap Chinese goods.

This is a textbook outcome of the bipartisan U.S. push for free trade: Big long-term benefits - billions of dollars in savings from lower-priced imports - will be dispersed among millions of American consumers, while the short-term job losses will be highly concentrated in such remaining U.S. textile-producing regions as the Carolinas and in other nations uncompetitive with China.

The quotas set nation-by-nation limits on how many of hundreds of items could be sent to America.

But only 5 percent of U.S. clothing is still made here, so the big change from the demise of the quotas will be an acute shift toward exports from China, the lowest-cost producer, whose share of world textile and clothing exports is expected to triple to 50 percent in a few years.

If Chinese imports do flood in, U.S. law allows import-surge safeguards, which U.S. producers illogically have already sought. The Bush administration hasn't acceded, but it recently slapped a one-month embargo on Chinese clothing in response to its 2004 exports exceeding U.S. quotas. And trying to head off worse, China just imposed new tariffs on some of its textile exports.

These short-term moves to soften the impact of the transition will not stop the inevitable: China will export a lot more textiles to America, which will produce less. China's vast reserves of cheap labor and rising efficiencies will enable that, even if it ultimately gives up its cost advantage from keeping its currency undervalued by as much as 30 percent.

Lost in the middle of this trade imbroglio is the long-standing need to step up federal aid to workers dislocated by foreign trade. Studies show that most who lose jobs to such competition are working again within several years, but often at lower pay. This should be addressed with more federal trade adjustment aid to such workers, aid that hasn't kept pace with U.S. job losses in recent years, and more support for on-the-job training by employers, the most effective form of re-education.

Worthy of further cost-benefit study is development of a wage insurance program to pick up a share of workers' pay cuts in the first years of new jobs; though costly, it would encourage employment, not unemployment.

As free trade expands, the United States will gain and lose jobs. More investment in retraining and in easing workers' transitions to new jobs is a key to making sure the gains from this vast global churning outstrip the losses. With American protectionist sentiments rising - as free trade becomes more of a reality - such investments in U.S. workers would also seem politically necessary.

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