Apparel Sourcing Intelligence - Worldwide

Is diplomacy really returning to trade disputes?

America’s backing down from confrontation with China over currency management almost coincided with its agreeing to work with Brazil on a solution to the anger its cotton subsidies are causing.
Both disputes – like America’s handling of anger among its NAFTA partners over bans on foreign trucks and foreign manufacture of airport security uniforms – demonstrate an important principle of international trade that’s discussed far too rarely.

  • America’s working agreement with Brazil involves the US making concessions to Brazil that compensate for the damage US cotton subsidies have done to Brazilian businesses. These include programme to make it easier for non-cotton exporters in Brazil to sell to the US. American cattle breeders, for example, will now face tougher competition as a result of the subsidies the US has been giving cotton growers
  • Mexico’s sanctions against US exporters hit a wide range of US industries – few connected to the freight industry protected by America’s illegal ban on Mexican truckers driving merchandise into the US
  • The agreement with Canada, arrived at to compensate the Canadians for America’s breach of the NAFTA treaty by banning the use of Canadian manufacturers for airport security uniforms, opens up US government procurement to a much wider range of Canadian suppliers
  • The argument over Chinese currency management isn’t just between Americans wanting China to increase the value of the Yuan and Chinese who don’t. We’re all used to America retail organisations arguing against measures that put prices up: but what’s new is the range of Chinese businesses that want their currency to increase in value this time. Chinese steelmakers want the cost of raw materials from Australia to fall: airlines want to see their finance charges come down: computer makers just don’t want to upset America

Lobbyists for a particular industry love to portray trade rules as being in the national interest. In fact, practically any rule a government invents is going to damage some of its businesses and workers, and help others. Lobbyists always try to hide this. It’s much easier to blame devious or dishonest foreigners than to admit that something likely to increase job prospects in your town will create job losses in he town five miles away. Or in your next door neighbour’s family.
In the past two months, the US has been forced to recognise that widely-praised support for bits of the textile industry is going to damage business prospects for other Americans. And, increasingly, Chinese businesses are admitting their interests and those of low-margin exporters like garment makers aren’t perfectly aligned.
As governments grasp the complexity of today’s world, more and more trade dealings will have to be discussed quietly, away from oversimplifying lobbyists and politicians. That’s why – as our first review of the lessons the recession’s taught us showed – the most important lesson of the past 18 months is how very, very few pieces of protectionism have been enacted by rich countries.
The corollary’s more subtle, though. Trade agreements are going to get to cope with a world that’s a million times more complicated than lobbyists like to depict. And sooner or later, politicians’ demands will change with them