China Policy Looms in Presidential Campaign

A big question for industry executives this election year is how he will address the trade relationship with China.

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WWD Sourcing Horizons issue 09/16/2008

WASHINGTON — A big question for industry executives this election year is not necessarily whether the next president will bring change to Washington, but rather how he will address the trade relationship with China.

This story first appeared in the September 16, 2008 issue of WWD.  Subscribe Today.

The entire fashion industry, from textile producers to retailers, has significant exposure to trade with China. Apparel importers shipped 21.1 billion square meter equivalents of apparel, textiles and home furnishings, valued at $32 billion, into the U.S. from China for the year ended July 31. By contrast, the U.S. textile industry has lost thousands of jobs due in part to international trade and imports.

While none of the China trade-related bills introduced in Congress has gained enough critical mass to move past the House and Senate to President Bush’s desk this year, most political observers anticipate some form of action next year, particularly if the Democrats gain wider margins in Congress and also claim the White House.

Illinois Sen. Barack Obama, the Democratic presidential nominee, has said he would crack down on currency manipulation and give more scrutiny to contaminated Chinese imports.

Daniel Tarullo, senior economic adviser for the Obama campaign and law professor at Georgetown University Law Center, in an interview last week said Obama “thinks it is quite important that China change its currency practices” beyond the changes the nation has already made, which have led to a modest appreciation of the yuan against a basket of currencies, since the People’s Bank of China ended a peg to the dollar in 2005.

“I think it is important to note that obviously he would like to see changes in those practices to provide more reciprocal benefits in U.S.-China relations,” Tarullo said.

Tarullo also indicated an Obama administration likely would file more cases at the World Trade Organization than the Bush administration has over the last eight years.

Arizona Sen. John McCain, the Republican presidential nominee, has not addressed the issue of China on the campaign trail. A spokesman for the campaign said in an interview that McCain believes “China presents a tremendous opportunity for the U.S. economy, but we also must make sure U.S. workers and business get a fair deal in the relationship. We have to take a harder stand on intellectual property rights protection and, as president, he would pursue that.”

Mickey Kantor, U.S. Trade Representative under President Bill Clinton from 1993 to 1996, said an Obama administration would “be much more focused on enforcing trade laws and trade agreements, and ensuring that U.S. exporters are treated fairly and that the agreements we have with China at the WTO are fully enforced.”

“John McCain seems to be such a reactive free trader that he never mentions enforcing our trade laws and agreements,” said Kantor.

Some U.S. apparel importers feel the candidates have not provided enough details about their approach to China or whether they would bow to protections for the U.S. textile industry.

“I haven’t heard expressly from either Sen. Obama or Sen. McCain on textile trade policy,” said Mark Jaeger, senior vice president and general counsel at Jockey International Inc. “I think free and fair trade is going to be an important part of the debates and something that each campaign will continue to talk about.”

Jaeger said he has been encouraged by McCain’s free trade record and “campaign talk [against] special interests.”

Bud Konheim, president and chief executive officer of Nicole Miller, said he would expect both an Obama or McCain administration to go after unfair trade practices by China or any other country with equal aggressiveness.

“It would put a feather in everybody’s cap,” said Konheim. “On the two fronts of sweatshop labor and the environment, I think you would find a heavy hand with either president.”

But Konheim questioned how far either administration could push China to revalue its currency.

“My experience with China for a long time has been they do exactly what they want to do,” Konheim said. “There is not a lot of pressure we can bear on our biggest lender, and as long as China owns us, the leverage is limited. It will be an interesting wake-up call” for either Obama or McCain.

A major flash point between U.S. textile producers and apparel importers is a three-year bilateral agreement with China that restricts 34 categories of apparel and textile imports and is set to expire at the end of the year. The textile industry plans to step up the pressure on a new administration to confront China on alleged subsidies and currency manipulation, and to implement a new monitoring program of Chinese apparel and textile imports to investigate dumping — the selling of goods in a country below market value or the cost of manufacturing.

The Obama and McCain campaigns confirmed separately that the two presidential candidates have not taken a position on the issue of the expiring Chinese apparel quotas.

Gary Hufbauer, a senior fellow at the Peter G. Petersen Institute for International Economics, said he believes an Obama administration will be more “sympathetic” to the textile industry’s concerns and more likely to penalize China, if injury is found, under a general China safeguard provision that does not expire until 2012.

“I don’t think McCain will allow these kinds of cases,” said Hufbauer.

Another important China-related issue is how a new president will develop a strategy to deal with China’s currency policies. Critics, including domestic manufacturing groups and many in Congress, argue that China undervalues its currency by as much as 40 percent, putting U.S. manufacturers at a competitive disadvantage because they can’t compete against lower-priced Chinese imports.

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