Something smells unpleasant to U.S. textile manufacturers of late. Socks. And a few other things. No, it’s not the socks that are the source of the smell; it’s the source of the socks that stinks, according to some. As of January 1, 2005, all quotas on textile and apparel products that enter the United States, Canada, and the European Union have been removed. This means that foreign made pants, fabrics, yarns, shirts, underwear, and, yes, socks, are now a big concern to U.S. manufacturers.
No one likes to be outcompeted in one of their traditional market niches, but U.S. textile manufacturers expect to face extremely stiff competition, from China in particular, as markets open wide to foreign textile imports. North Carolina, with a history in textile and apparel manufacture, is anticipating a particularly tough situation. Industry spokesmen project that fewer jobs will be viable in North Carolina’s segment of the shrinking U.S. textile industry (Raleigh, News & Observer, January 1, 2005). Some plant owners, however, are making changes that can help them successfully adapt to change in this newly opened atmosphere.
The U.S. has used quotas to limit textile and apparel imports since the 1960s. Some of the world’s lowest-cost producers of textiles, like China and India, have had restricted access to lucrative American markets due to quotas. With far lower labor costs than American manufacturers, producers in China and India have been able to keep costs low and sell cheap—exactly why American manufacturers wanted the import barriers in place.
Quotas are simply quantity restrictions. Unlike a tariff, which is a tax, quotas set limits on the amount of a product legally permitted to enter a country. With less of the foreign product available, more people will “buy domestic.” The quota eventually drives up prices, no matter which source—domestic or foreign—the consumer chooses. Domestic producers gain protection from foreign competition; consumers lose choices.
With textile quotas gone, consumers have a wider choice in the market for fabric and clothing. The added choices are almost certain to cause product prices to fall. But high cost American manufacturers fear that they will not be able to compete with low cost, low price foreign manufacturers, unless the U.S. government steps in to protect them from the onslaught of foreign pants, socks, and underwear. So far, the U.S. Court of International Trade isn’t cooperating with the petition to approve a temporary or “safeguard” quota for these goods.
What’s a textile mogul to do? Innovate, and adjust, that’s what.
In anticipation of the end of textile quotas, some U.S. producers began to switch to lower cost production techniques a few years ago. One switch involves mechanizing some tasks that used to be performed by labor. It’s an expensive and risky change, however, with no guarantee of financial success. A few manufacturers are moving offshore, and some are changing their product lines to deflect the anticipated drop in traditional sales. Firms are also competing on service, delivery speed, and other aspects of the business. As the demand for some U.S. made textile products, and workers, drops, the demand for innovative technologies and marketing will increase, along with the demand for labor in those areas.
It is hard to know whether Chinese socks are “disrupting the American market,” as the U.S. Committee for Implementation of Textile Agreements claimed, but as with all transitions, there are likely to be painful moments.
For consumers, there is a happy note. An end to quotas means more plentiful socks and other apparel choices. Plentiful products mean cheaper products, so opening the gates to more imports will definitely benefit consumers. As for renegade socks, they are nothing new. I realize they have been up to no good every time I do a load of laundry, and discover that yet another sock has escaped from its mate, to try and make it out there on its own.