As someone who has spent the best part of 20 years covering global trade talks, I know from bitter experience that it takes a lot to elevate tariffs, quotas and subsidies on to the front page.
Recently, however, reports that there are shiploads of ladies’ underwear lurking on the borders of the European Union, due to a decision to limit imports from China, have elevated trade to the lead item on the BBC news.
The outcry over recent higher prices and restricted stock is being hailed as both a policy and public relations disaster for Peter Mandelson, the EU’s trade commissioner.
Last week’s talks in Beijing were an attempt to cobble together a face-saving deal that would allow European countries to exceed their Chinese quotas by bringing forward imports earmarked for next year.
That said, Mandelson’s approach was a decent effort to balance the interests of Europe’s consumers with those of textile producers faced with a deluge of cheap Chinese imports.
A global textile free-for-all began on January 1 after the scrapping of the Multi-Fibre Agreement, which had given countries a fixed quota for clothing exports. The Chinese gave European producers little time to adapt.
Mandelson’s idea was to put in place transitional arrangements to give companies a breathing space. But, on some estimates, China will be the second biggest economy in the world behind the United States within a decade — and it is diversifying.
China’s electronic exports to Europe used to be cheap consumer goods, but recent years have seen a big increase in sales of computer and office equipment. Almost 20% of China’s exports are now classified as high-tech and there’s every reason to believe that the percentage will grow.
Everything that China buys has gone up in price — notably oil, but also steel — at the same time as everything it sells has been going down in price. For rivals in the West, this has been a double whammy — higher costs for fuel and raw materials, and lower selling prices to remain competitive.
Mandelson last week said there was no prospect of a shortage of Chinese-made clothes as he set in train measures to free tonnes of imports blocked at EU ports. But, he failed to give details of his proposals while admitting that talks with Beijing had reached an impasse and said there was no deadline for cutting a fresh deal.
Governments in the United Kingdom and the US have reason for concern, since strong consumer spending, fuelled by cheap imports, has helped sustain growth.
The economic textbooks say there’s nothing to worry about. Countries specialise in what they are good at, so there should be a ready (and growing) market in China for high-tech Western goods and services. There are those, though, who see textiles as merely the thin edge of a very large wedge. What will happen, they ask, when China can flood the world with everything from pharmaceuticals to financial services? Western consumers are Western producers too — and if they are not producing anything, how can they carry on consuming?
From this perspective, the whole of Western manufacturing and much of its service sector will be hollowed out unless there are more vigorous measures, such as full-blown protectionism.
Western politicians are certainly not ready for that, so they are backing the alternative solution: braining up. The UK’s Finance Minister Gordon Brown is urging a concentration on knowledge-based industries, everything from biotechnolgy to accountancy, to meet China’s challenge. In the UK, knowledge-intensive services have grown at more than 8% a year since 1997. The choice, it seems, is protectionism or to roll with the punches. Even if they hurt. — Â