Heimtextil trade fair illustrates complexities of phase one deal on global trade…and then there’s the coronavirus epidemic.
At the Heimtextil trade show held in January in Frankfurt – this is the world’s biggest trade fair for the home-textile industry - Asians were saying that the phase one deal signed by the U.S. and China in Washington on January 15, was not a “settlement” of the trade war but a mere “ceasefire”.
“The first phase deal provides some respite in the ‘firing’ between them (U.S. and China), but I can’t predict where this will eventually lead to,” observed a Taiwan-based home-textile manufacturer who insisted on remaining anonymous because of “business sensitivities”.
Olaf Schmidt, the vice president (textiles/textile technology) of Messe Frankfurt which organizes prestigious trade shows, including the Heimtextil, Texworld, etc., is a highly-respected expert on global textile trade; he said that the business community needed certainty to plan its future business.
“Long-term planning is essential for good business … be it in the U.S., Europe or Asia,” Schmidt said.
Schmidt’s views were also echoed by Chinese businesspeople in New York. In a recent interview with the American Journal of Transportation at New York’s Texworld trade show, Zhang Tao, the secretary general of the Beijing-based China’s Sub-Council of Textile Industry (CCPIT), acknowledged that 2019 had been a very challenging year for the industry because of the trade war and its impact on textile (fabrics, apparel, etc.) exports to the U.S.
“The U.S. is the world’s second biggest market, after the combined European Union market, for our textile exports,” Tao said. “The interesting thing is the shift in the apparel and fabric volumes exported to the U.S. Apparel and finished product exports were higher than fabrics, despite the fact that tariffs on apparel and finished product shipments to the U.S. were higher,” he noted.
China’s total global textile exports in 2019 amounted to $ 268 billion; of this, the U.S. imported some $ 40 billion.
Speaking on the phase one deal between the U.S. and China, Tao said that each side would thus gain time to grapple with the situation. However, he emphasized that the business community wants certainty to make long-term planning for the business. The U.S. Fashion Association has also emphasized the importance of providing certainty to businesses. The Chinese have been talking to several U.S. trade associations to represent their case to the U.S. authorities.
US Investment Outflow From China
Tao also touched on the question of U.S. investment outflow from China. He said that wages in China had been rising for years. “However, U.S. investments in China will stabilize once the U.S.-China agreement is finalized and on track. The U.S.-China economies will not decouple even though there may be disagreements between the two sides,” Tao predicted.
Uncertainty has also been plaguing Chinese suppliers, with many looking at possibilities to set up operations in a number of African countries, particularly Kenya, Ethiopia, Nigeria, Mauritius, etc. which enjoy duty-free exports to the U.S., thanks to the African Growth and Opportunity Act, (AGOA), a piece of legislation approved by the U.S. Congress in May 2000 with the purpose of helping sub-Saharan economies improve their economic relations with the U.S. After completing its initial 15-year period of validity, the AGOA legislation was extended on June 29, 2015 by a further 10 years, to 2025.
Tao said that Africa itself was becoming an attractive market and its potential could be tapped as further development gets under way in that continent. “But many Chinese companies are also looking inwards. China itself is an attractive market with a high-spending middle-class. Chinese companies are also building their own brands … perhaps, in 15 or 20 years, Chinese brands will be as renowned as, for example, Italian brands,” he said.
China also buys large quantities of cotton from the U.S. for textile manufacturing. “The quality of U.S. cotton is superior … China has pledged to purchase more cotton from the U.S. as part of the phase one deal,” Tao observed.
Meanwhile, China announced it was halving effective February 14 additional tariffs levied against 1,717 products imported from the U.S. last year. Though China’s finance ministry did not specify which imported products would have reduced tariffs, some U.S. analysts expect these could likely apply to U.S. shipments of soybeans, crude oil, etc.; China has pledged to increase imports from the U.S. by some $200 billion in the next two years in return for the U.S. withdrawing some tariffs on Chinese shipments.
Coronavirus
Adding to China’s woes is the outbreak of the dreaded coronavirus which has spooked international businesses. As of writing this piece, over 1,000 people had died and over 40,000 infected in China; the death-toll keeps rising.
Many foreign nationals having business dealings with China have been avoiding or curbing their direct contacts with Chinese out of fear of getting infected. The delay in restarting production and distribution of goods could create a cash-flow problem for the smaller companies which have limited survival capability. Freight costs on shipments to and from China have risen sharply due to lack of flights.
Visiting Chinese businesspeople in New York, preferring to remain anonymous, said that some international retailers had closed their outlets in China, including big names such as Ikea, Starbucks, etc.
The coronavirus has hit China far more severely than the 2003 SARS crisis. Given China’s crucial role in international supply chains, this could cause disruptions ahead. Foreign automobile manufacturers have either closed or reduced their production because of distribution problems of China-made parts. Industries such as mobile phones and computers, may also be affected.
China may also possibly redefine its development priorities, weighing between its domestic and international commitments.
Doubts are also being expressed about the future of China’s much-touted Belt-and-Road-Initiative, following depleting cash reserves hit by slower economic growth in course of the U.S.-China trade war.
