Textiles and Terrorism

Lael Brainard
Lael Brainard National Economic Advisor - National Economic Council

December 27, 2001

In recent months, a little-known but dramatic struggle has been raging between the leaders of the American-led international antiterrorism coalition and Americans who are determined to preserve jobs in the textile and apparel industry. It is a microcosm of the debate over trade: pitting America’s broad interests as a global superpower—a nation of consumers and a home to world-class exporters as well as an international political leader—against workers and companies struggling to survive in the international marketplace.

Even as the Bush administration has scored successes in foreign policy, it has been forced to yield on the home front in a series of standoffs over the textile and apparel trade. In the early weeks of the war effort, American officials and their European counterparts scrambled to identify tangible economic measures to reward President Pervez Musharraf, Pakistan’s military ruler, for his support. Mr. Musharraf’s wish list was short: debt relief and greater access to Western markets for Pakistan’s apparel and textiles, which account for nearly 80 percent of its export earnings.

This seemed reasonable. The war has directly disrupted Pakistan’s trade through increased insurance costs and shipment delays. The administration made good on its promise to provide debt relief. But a funny thing happened as Washington prepared to welcome Mr. Musharraf for his visit to the United States. The administration quietly dropped plans to expand access for Pakistan apparel imports in the face of resistance from the domestic industry and House Republicans, who warned it could undermine support for fast-track trade promotion authority—a high priority for President Bush.

The same week, Robert Zoellick, a United States trade negotiator, was in Doha, Qatar, for the opening of a new round of global trade talks. The negotiations yielded success but required substantial American concessions. It quickly became clear that the administration had made a calculated decision to offer concessions—on intellectual property protection, to the consternation of the American pharmaceutical industry, and by putting America’s antidumping laws up for negotiation—rather than yield on accelerating the opening of American markets to textiles. Mr. Zoellick stuck to this decision despite efforts by India and others to make textiles the litmus test of the rich countries’ promise to launch a “development round” of world trade talks that would bring more benefits of globalization to poorer countries.

The most recent episode in the textile story was also the most dramatic. In Washington, the administration secured House passage of fast-track trade promotion authority, by a margin of one vote, only after promising to roll back some of the access to American textile markets that had been granted to the countries of the Caribbean and Central America in the 2000 Trade and Development Act. This 11th-hour turnaround—which secured three additional Republican votes nearly 20 minutes after the official 15-minute time limit had expired—apparently so incensed the chief House Republican sponsor of fast-track that he threatened to torpedo passage of his own bill by voting against it. The fast-track vote should have signaled that the United States is ready to deal on trade; instead, many observers around the world were left skeptical about the reliability of American promises.

The textile and apparel sector has been on the front lines of the trade debate between poor and rich nations for decades. Since Great Britain embarked on its industrial revolution, this sector has been a crucial steppingstone for countries seeking to enter the modern industrialized age. Production of clothing and other finished textile goods—with the exception of some high-end products—continues to depend heavily on low-wage workers, and it is an industry in which factories move with relative ease to take advantage of lower wages.

Our current multilateral trading system, which sets the rules for globalization, singles out textiles and apparel as an industrial sector in which developed countries can protect their industries from developing nations’ imports by using quotas. In addition, textile and apparel tariffs remain relatively high: in the United States, three times higher than the average tariff. And American workers and companies struggle mightily to hold onto these protections, sobered by the experience of American footwear production—a similarly labor intensive industry that has largely disappeared from the American economy. Employment in the textiles and apparel industry has fallen by half over the past three decades, with a third of that decline occurring in the last five years.

But the developing nations can make an equally compelling case. The World Bank’s chief economist estimates that protection in the rich nations costs the developing nations perhaps twice the value of the international aid they receive. Put simply, developed countries have their highest trade barriers in precisely those industries, like agriculture and apparel, where poor countries would have the best chance to work their way out of poverty.

The recent episodes illustrate the forces buffeting trade policy. A similar dynamic was apparent when France nearly scuppered the Doha round because of pressure from its own agriculture lobby. And it will play out in the weeks and months ahead as the administration and Congress attempt to forestall further pain in the steel industry, weighing the pluses and minuses of trade protection as opposed to domestic solutions like federal subsidies for retired steelworkers’ health and pension costs.

Trade policy presents hard tradeoffs between, on one hand, the losses faced by those whose jobs and companies are vulnerable to international competition and, on the other hand, the greater but more diffuse national interest in a more competitive and productive economy—and in promoting a more peaceful, prosperous and equitable world. Senate Democrats’ proposed expansion of assistance to workers facing job losses from trade is one promising way to lessen the pain of economic globalization. It should be paired with any trade legislation.

But easing pain is not the same as eliminating it. The current recession has raised the ante for workers who are trying to hang onto their jobs. At the same time, the campaign against terrorism has reminded Americans that our security depends on ensuring that other countries have a stake in the international system—which can only be done if the wealthy nations lower their trade barriers. Delaying the integration of many millions of people into the international economic system has real political costs, as may soon become apparent in Central and South Asia and elsewhere.