As the dollar in recent months has declined against other world currencies, including the euro and Japanese yen, China’s currency has slid in lockstep, putting further pressure on those economies.
“The U.S. has an interest in seeing China revalue its currency for a variety of reasons that go beyond apparel,” Kalish explained. He is global director of consumer business at the consulting firm and author of the 26-page report “The World’s Factory, China Enters the 21st Century,” which was released last month.
While the weak currency makes all kinds of Chinese consumer goods appear cheaper than they would otherwise be, it also artificially reduces the spending power of Chinese consumers. So, if the yuan and renminbi rose in value, the move would not just lift pressure off competing manufacturers in the U.S. and elsewhere in the world. It would also make China — with its population of 1.29 billion people — a more accessible market for many foreign suppliers.
At the same time, Kalish reasoned, China is desperate to prevent the U.S. from sharply curtailing rising Chinese imports in 2005, when the 146 World Trade Organization members will drop all quotas on textiles and apparel. As a part of the bilateral trade accord that paved the way for China’s WTO entry, the U.S. has a lot of leeway in limiting Chinese imports, either through tariffs or temporary quotas, if those imports prove a disruption to the U.S. market.
The American textile industry this year has been gaining ground in its effort to get the government to invoke those safeguard measures against China in several categories of merchandise that have already seen quotas lifted.
The Chinese, Kalish said, “are concerned that a protectionist move [by the U.S.] would hurt their apparel industry, which employs a lot of people.”
Apparel employment is particularly critical to China, he said, because the country is trying to reinvent its economy. For many years, millions of Chinese were employed in inefficient state-run enterprises that, according to observers, were managed with an eye toward employing the largest number of people, rather than operating in a cost-effective manner.