Commentary

CAFTA, China and the Carolinas

This article originally appeared in the Washington Times on July 10, 2005
On June 12, 1934, Franklin D. Roosevelt signed the Trade Agreements, which allowed Secretary of State Cordell Hull to begin rolling back the devastating Hawley-Smoot tariffs by negotiating what we might now call free trade agreements.

The Central American Free Trade Agreement (CAFTA) is in the New Deal tradition too many Democrats have abandoned.

Poor countries invariably have high tariffs against imports — that is a big reason they’re poor. Tariffs in Costa Rica, Guatemala, El Salvador, Nicaragua, Honduras and the Dominican Republic average 38.4 percent, according to the World Trade Organization. U.S. tariffs, by contrast, average 3.7 percent, and 37.3 percent of our imports are duty-free.

Under CAFTA, Central American countries would have to greatly reduce their super-high tariffs against U.S. exports. But the only places there is much room to cut U.S. tariffs are: (1) textiles and apparel, where tariffs average 8.7 percent, and (2) sugar, where Agriculture Department import rationing keeps the U.S. price twice as high as the world norm.

As The Washington Post explained, “Sugar growers and refiners gave $2.4 million in contributions to Democratic and Republican candidates in the 2003-04 election cycle, more than any other agricultural group.” But the unmentioned elephant stomping around the Capitol is Archer Daniels Midland (ADM), because keeping the indefensible sugar quotas creates a lucrative market for corn syrup.

Opposition to CAFTA from the sugar quota gang was predictable. The reaction of textile and apparel industries to CAFTA has been far more interesting.

The Wall Street Journal wrote that CAFTA “has run into strong opposition. Not all U.S. textile producers are thrilled about the deal; they fear competing against low-cost labor abroad.”

The Washington Times simultaneously ran a letter from textile producers thrilled about CAFTA. It was co-signed by Cass Johnston, National Council of Textile Organizations president, and Kevin Burke, American Apparel & Footwear Association president. They noted that “11 major textile and apparel trade associations have voted to support the agreement.”

The reason would be obvious if reporters could spot the difference between fabric and clothing. One difference is the U.S. runs a trade surplus in fabric — exports topped imports by $1.2 billion last year. Newspapers described the recent spat with China as a “textile” dispute. But it was almost entirely about helping U.S. apparel companies stuck with contracts or plants to make bras and robes in some other foreign countries, not China. The United States is home to the four biggest apparel companies in the world. But the low end of that business (sewing collars on T-shirts) has virtually disappeared in all advanced economies.

The United States will import nearly all clothing regardless of CAFTA or China. Sweatshops aren’t coming back. But companies sewing clothing in Bangladesh can’t afford the time and shipping expense of buying U.S. fabric. And clothing companies in Central America much prefer to buy materials from the United States rather than distant Pakistan. CAFTA countries spent $2.4 billion on U.S. textiles last year.

Since 11 major textile and apparel trade associations are thrilled about CAFTA, which politically powerful U.S. textile producer is apt to offer “strong opposition”?

Sen. Lindsey Graham, South Carolina Republican, is co-author of the most dangerous act of trade warfare since 1930, a threat to impose something akin to Hawley-Smoot tariffs against one country, China. By no coincidence, one of Mr. Graham’s most generous political supporters is Roger Milliken, 89-year-old billionaire president of Milliken Industries, a multinational textile empire with estimated sales of $3.4 billion.

After financing many worthy causes, Mr. Milliken has lately became notorious as an easy mark — someone eager to write big checks to anyone willing to fabricate any excuse for using tariffs and quotas to “protect” Americans from low prices.

On the Milliken dole reportedly were Pat Buchanan, Ralph Nader, Pat Choate, Newt Gingrich (for a while), the Economic Strategy Institute and the U.S. Business and Industry Council. This money trail was best described in, “Silent Partner: The man behind the anti-free trade revolt,” by Ryan Lizza in the New Republic, January 2000.

The secret to Roger Milliken’s wealth is imports — importing labor-saving textile machinery from Europe and using it (of course) to save labor. If Congress gave him higher tariffs so he could charge higher prices, he would probably use the extra profits to import more machines and lay off more workers.

As the New Republic explained, “For decades now [Roger Milliken] has bought only foreign-made machinery to produce his American textiles. The foreign manufacturers of this equipment, including Sulzer of Switzerland and Menzel of Germany, began to establish a full-time presence in South Carolina in order to service their equipment shipped from abroad. In fact, as Bob Davis and David Wessel document in their book, ‘Prosperity,’ Milliken & Co.’s imports allowed foreign investors to get a foot in the door.”

On Oct. 23, 2003, Milliken Industries put out this press release: “Due to the flood of cheap fabric imports from Asia, textile firm Milliken and Co. is planning to close its two South Carolina plants, because of which 240 workers will lose their jobs.” Blaming any difficulties on cheap imports (rather than on costly oil) was convenient but also hypocritical.

Milliken.com boasts “over 12,000 associates located at more than 60 facilities worldwide working with more than 38,000 different products. … We have manufacturing facilities in Australia, Belgium, Brazil, Denmark, France, Germany, Japan, Spain and the United Kingdom.” Mr. Milliken’s own company does not mirror the provincial, antiglobal politics he has championed and bankrolled.

Milliken Industries has nothing to do with clothing, except turning petroleum into synthetic fabric. “Making tennis balls feel soft and Jell-O puddings taste smooth and creamy are just two of the things that Milliken & Co. does,” according to Hoovers.com. “Milliken produces finished fabrics for rugs and carpets, as well as other synthetic fabrics used in such goods as apparel, automobiles, tennis balls and specialty textiles. It also makes chemicals and petroleum products. Milliken’s colorants infuse products such as Crayola markers, its clarifying agents make plastics clear, and its various other chemical products are used in the automotive, consumer products and turf markets.”

Hoovers says top Milliken competitors are DuPont, Berkshire Hathaway’s Shaw Industries and North Carolina’s International Textile Group. Tough competition — but not Asian.

Unfortunately, the political struggle over CAFTA in the House may come down to a battle between many U.S. companies sure to gain from reduced barriers to their exports and others from reduced production costs, pitted against a couple of political high rollers who cannot imagine making money except from import quotas and tariffs.

Shrinking or eliminating U.S. import quotas and tariffs is always in the consumer’s best interests, no matter what other countries do, because it invigorates competition and reduces the cost of living. But since consumers don’t toss money around Washington the way Milliken and ADM do, the consumers’ interest in CAFTA is rarely even mentioned.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.