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Yarn Market
James L. Lemons, Ph.D., Technical Editor

Added Pressure On Chinese Currency

James L. Lemons, Ph.D., Technical Editor

C ongress recently passed legislation that will allow federal debt to grow by a record $984 billion. This comes on the heels of the Bush administration raising its budget deficit projections to $455 billion for this year and $475 billion for next year. If these projections become a reality, they will surpass the record $290 billion shortfall of 1992. These massive deficits and economic stagnation have caused the dollar to weaken against most foreign currencies, falling 9.3 percent in 2003 against the euro. However, the Chinese yuan is pegged to the US dollar and is not traded in global markets. This gives Chinese exports approximately a 40-percent advantage over US goods.

The US trade deficit with China was $103 billion in 2002, compared to a deficit of $82 billion with the European Union for the same period. European finance ministries are now pressuring China to loosen its currency controls and allow the yuan to rise against the dollar.

Officials in China are not indicating any immediate intentions to alter the exchange rate or let the yuan trade freely. However, there is some speculation that China will relax or alter its policy in an attempt to ease internal inflationary pressures due to a tremendous growth in money supply.

Common Threat Unites Industry

As American consumers continue to fuel the flood of cheap Chinese imports, US manufacturing jobs continue to disappear —more than 2 million jobs over the past two years. A report recently released by the American Textile Manufacturers Institute (ATMI) predicts that 1,300 textile plants and 630,000 textile jobs will disappear between 2004 and 2006 as a result of Chinese imports. This year, the industry has recorded actual job losses of 44,600 through June, according to the Bureau of Labor statistics.
All of this is happening prior to the removal of quotas on Chinese imports effective January 1, 2005. It is estimated that China could capture up to 75 percent of the market once these caps are gone. However, there is a potential for government intervention to protect the industry from this surge of imports. In June, the administration finally released the guidelines to apply for safeguards to cap specific imports if they are causing market disruption.

The CEO of one major yarn manufacturing firm said, “It took Bush almost three years to impose safeguards on steel — any delay is potentially fatal for our industry.”

Another yarn manufacturer indicated, “The textile industry has been used as a bargaining chip in trade negotiations for years. Our industry won’t forget who broke their promises and who asked us to trust them. We will remember in November.”

Mike Hubbard, executive director of the American Yarn Spinners Association (AYSA) said, “ Dealing with China is the biggest problem facing our industry today.” Jim Chesnutt, AYSA president, put this situation into perspective when he said, “The administration told us they had a plan to help the textile industry. Where is the plan, what have they done?”

The safeguards being requested by the industry are only short-term measures that would expire in 2008. In light of the fact that textile and apparel imports from China have surged by more than 140 percent over the last year, immediate government intervention would be in order. However, despite petitions from ATMI issued a year ago, nothing has been done.

One yarn manufacturer said, “Even if the government reacts, it probably will pick a few small categories of goods that don’t affect our business — it needs to start with knit shirts.”

An open-end plant manager said, “It may be too little too late, but it is encouraging to see our industry coming together like it never has in the past.”

Speaking Of Coming Together

The Southern Textile Association is sponsoring a machinery vendor conference to be held on August 19, 2003, at the North Carolina Center for Applied Textile Technology in Belmont, N.C. Bill Gray, Murata Machinery USA, said, “The conference is designed to help yarn manufacturers to deal with specific problems they are facing in new product development, cost reduction, and quality improvement.” A number of yarn manufacturing equipment vendors, including Trützschler, Symtech, Murata, Rieter, Saurer and Uster, will present technical reports.

August 2003

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