Apparel Sourcing Intelligence - Worldwide

Obama learns to be inscrutable

The President Obama speaking about trade with China on February 3 was a very different man from the one who promised to be tough on Chinas while campaigning for office.

 

Writing to textile lobbying group the National Council of Textile Organisations in October 2008, he made five specific commitments:

  • On alleged Chinese currency manipulation: “I will use all strategic means at my disposal” to persuade China to change
    He was in favour of the law requiring US armed forces to wear uniforms made from US fabric
    He would “support inclusion of the yarn forward rule in free trade agreements”.
    “As President… I would use monitoring to help ensure that imports from China do not violate applicable laws and treaties”
    “When domestic industries make use of…laws…applicable to imports from China, I will decide those cases on their merits

Now we pointed out at the time that this wasn’t a manifesto for more protectionism: indeed it avoided any real commitments at all. But he certainly meant it to sound that way.
And he’s still trying to sound hawkish on China’s currency manipulation. But his Treasury keeps on arguing that Obama absolutely shouldn’t do anything to persuade China to change its policy – and, though it thinks China IS playing games, it really isn’t sure that’s such a bad thing for America. So the currency markets’ price for 12 month Yuan options stayed practically unchanged from the previous day after they’d listened to him.
And on more general trade issues, instead of sounding hawkish, Obama’s now shouting the case for avoiding trade disputes: he went out of his way to stress he did not want to escalate trade arguments with China as “to close ourselves off from that market would be a mistake”
The simple truth seems to be that Obama knows trade wars in general aren’t in America’s interest – but also that lots of Americans think they are, lots of Americans think they aren’t and lots of Americans change their mind on the subject, depending on whether their job depends on selling to China or on selling things China makes more cheaply. So the odd skirmish might be totally in America’s interest from time to time
The likelihood is that tensions will neither rise nor fall. It’s a hugely complicated issue, and Obama is smart enough to know there’s no one simple stance that assures growing US prosperity. Over the next few years, there’ll be times he’ll tread on Chinese toes – and the Chinese will scream – and times he’ll go out of his way to make them happy – so his more simple-minded fellow citizens will scream. He’ll be scrupulous in following WTO rules when he’s got a squabble with them – but what he ends up doing during a dispute will depend entirely on the circumstances at the time.
The moral for the apparel industry? Take nothing for granted. The likelihood is there’ll be no more restrictions on Chinese exports. But any real threat of them (like a petition for antidumping duties) has to be taken seriously. Assume China is the place to put most of your business would be our view. But make sure you’ve got an alternative source ready.