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

Wake Up America

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

U S Treasury Secretary John Snow recently was sent to China in an attempt to persuade its government to allow its currency to float. The Chinese yuan has for all intents and purposes been pegged at 8.28 to the dollar since 1995. The effect has been devastating, as American textile jobs have been destroyed by cheap Chinese imports.

As one yarn manufacturing executive said, “This is nothing more than a ‘Snow job’ — just another bureaucrat with more rhetoric from Washington.” He was referencing the fact that Alan Greenspan, chairman of the Federal Reserve, has been brow-beating Beijing for months with no success.

Snow admitted that Chinese leaders gave him little cause for optimism. In fact, Premier Wen Jiabao said he feels that a stable exchange rate “benefits both countries.” With rising unemployment in China, it makes little sense for them to give up their 40-percent competitive advantage due solely to their undervalued currency.

In response, the Senate has introduced bills that would allow the Treasury to impose tariffs and would remove China’s special trading status if it does not take action on the currency within the next 180 days.

A House bill would require a Treasury study of the currency situation. China’s productive capacity is being made possible largely because of investments from the Western world. According to figures released by the United Nations Conference on Trade and Development, China attracted more foreign direct investment last year than any other country in the world. As foreign investment in the United States has slowed rapidly over the last few years, China has moved into the second spot directly behind the United States and quickly is gaining ground. As one US textile executive said, “ Wake up, America. We are helping to ultimately put our children out of a job.”

Other spinners have a different view. For example, one CEO said, “We don’t want to go offshore, but what choice do we have if we want to stay in business?” Another spinner asked, “ Should we be more upset with the American government for developing a trade policy that lets this happen, or should we be more upset with the American consumer for saving a few cents and putting their neighbors out of a job?”

More Pressure From Coalition
A major concern expressed by the textile/fiber coalition revolves around the proposed Central American Free Trade Agreement (CAFTA). The coalition, especially the yarn manufacturing sector, realizes the importance of point-of-origin provisions that would remove quotas and duties on apparel made in this region if they are made from American yarns and fabrics. Equally important is insurance that CAFTA does not include any Tariff Preference Levels (TPLs), which would allow the use of yarns or fabrics from anywhere in the world.

A plant manager for a major yarn manufacturer said, “We need this to come out the same way as the Caribbean Basin Initiative — nothing more and nothing less.” Another spinner said, “This agreement has great potential for our company if Congress doesn’t cave in to the pressure from importers.”

Economy Is Improving
An examination of a number of key economic indicators would suggest that the economy is gaining momentum.

Improvements in the economy overall are reflected in the Index of Leading Economic Indicators, which rose by 0.4 percent in July. Although this is good news, the results haven’t trickled down to the spinners yet. Most companies are still reporting flat or weakening sales, with prices continuing to decline. As one spinner said, “We are just trying to hold on right now — we feel there are some orders in the pipeline — hope we will be here to fill them.” Another spinner said, “We feel some positive things in our business for the first time in months — just hope this isn’t a flash in the pan.”

Although improving, the economy seems to be very fragile right now. If Greenspan keeps his promises on holding the course on the prime rate, we may be in a position to attract some additional capital investment — just what the doctor ordered!

October 2003

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