WASHINGTON — As a trade storm brews over surging Chinese imports, the long-term ramifications of buying the vast majority of apparel from abroad are rippling through intertwined segments of the economy.
Employment is one area that economists watch closely to gauge the nation’s fiscal health. It is also an area that is influenced by trade — whether positively or negatively is an issue of considerable debate.
The U.S. economy added 274,000 jobs in April, holding unemployment steady at 5.2 percent. New job figures for May come out today and will be closely watched for signs of further strengthening, although domestic manufacturing will likely continue its downward employment trend.
Domestic producers, however, have long argued the imports have increased their job losses. U.S. apparel and textile plants cut 3,300 jobs in April, making for total employment of 666,500, down from more than 1.5 million employees 10 years earlier.
“If we could have held imports constant over the last 10 years, textile and apparel would have added jobs,” said Charles McMillion, president and chief economist of MBG Information Services.
But the debate rages over the impact of free trade on U.S. production and whether the American economy can thrive without a strong manufacturing sector. This divisiveness is seen in the discussions over the merits of the Central American Free Trade Agreement, as well as the need to place more restrictions on textile and apparel imports from China.
“A lot of U.S. apparel employment is very closely and positively tied to imports,” said economist Laura Baughman, who is president of the Trade Partnership, an economic consulting firm. “The U.S. apparel industry, for the most part, has gone international.”
The nations of the World Trade Organization dropped quotas on Jan. 1, breaking down barriers for global trade. This allowed Chinese apparel and textile imports into the U.S. to shoot up 60.5 percent to $4.77 billion in the first quarter.
The intensity of the increase prompted the Bush administration to implement new import restrictions last month — a 7.5 percent increase cap — on $1.31 billion worth of goods to protect the domestic textile industry, which has already been decimated by closings of mills and steep job losses.
This safeguard action has the Chinese government complaining that the U.S. should have done more to ease its transition into the post-quota world and dangling the possibility that it will bring a case against the new restrictions to the WTO.
Politics aside, Baughman said imports on the whole help keep prices down, which benefits consumers and checks inflation. In turn, that helps restrain interest rates and the cost of borrowing money for things like homes, she noted.
Major fashion companies such as Gap Inc. and Liz Claiborne Inc. produce their wares overseas, but have large domestic workforces that do everything from working the stores to marketing, design and distribution. For instance, about 60 percent of Claiborne’s 14,000 employees work in the U.S..
“There are a lot of positive feedbacks throughout the economy through imports and especially for imports from China,” said Baughman. “Imports from China tend to be of products that are not made in the United States, so consumers are able to get goods that they wouldn’t otherwise be able to have at prices they can afford.”
Relying increasingly on imports, retailers are a main source of job growth — department stores, and apparel and accessories stores added 4,700 jobs in April, in all employing 3 million. That marks an increase of 44,600 jobs from a year ago and a bump of 126,400 from 1995.
Many of the lost manufacturing jobs have been replaced by lower-paid service-oriented employment.
“We’re undermining consumer purchasing power by shifting jobs from higher paying, more highly productive manufacturing to lower paying and less productive retail and other services,” said McMillion.
Economists have also contended that manufacturing creates jobs to support the production process, whereas the service sector doesn’t.
Increased consumer borrowing, with low-interest credit cards and loans, has helped prop up demand for goods like apparel, McMillion said. Sales of apparel and accessories in April stepped up 2.8 percent to $16.7 billion, while department store sales advanced 1.3 percent $18.1 billion.
Part of the upswing can be traced back to the overall increase in jobs, said John Lonski, senior economist at Moody’s Investors Service.
“If people have more jobs, that’s always a positive for spending on apparel,” said Lonski.
A further testament to the strength of the consumer, sales picked up steam despite higher prices. The consumer price index for apparel rose a seasonally adjusted 0.3 percent during the first four months of this year. Women’s apparel was up a 0.6 percent. But over the long term, apparel prices haven’t kept up with inflation or the cost of living, slimming profit margins for vendors, while competition for a shrinking retail pie increased.