Economics, Politics, Social Commentary and occasionally Superstring Theory.

Wednesday, March 09, 2005

Chinese Import Surge

The International Herald Tribune has the newest Chinese textile import numbers (although they are not official numbers.) Predictably, the imports skyrocketed after the elimination of import quotas on January 1st. However, they did jump a little bit further than what everyone expected. I think there are a couple of reasons for this.

1. Inventory - many importers may have skipped their orders in December and just ordered twice as much in January. For instance, if half of my imports were coming from China at 1.00 per unit, and I had already maxed out my quota, so the other half were coming from Mexico at 2.00 per unit, then it would make sense to wait until I could get all of my units at 1.00 from China. Hence, putting off orders until after the quotas had expired.

2. FTZs - as a corrollary to this, Free Trade Zones allow importers to either pay the rate of duty at the time of importation into the FTZ or at the time you withdraw them from the FTZ for domestic consumption. Savy importers may have been (and may still be) betting on a protectionist response from the Bush administration and the corresponding spike in prices. They would have imported the textiles at the non-quota rate and are just waiting for the prices to go up.

Still, it's too early to tell what effect the elimination of the quotas will have, except that imports will go up. Prices will go down. The domestic textile industry will take a big(ger) hit. The service sector should grow, as more disposable income is passed along to consumers (theoretically) through cheaper textiles. Or, coporate profits could hit record highs again as MNCs (Schumpter's winners) refuse to pass the savings from globalization to people who lose their jobs (Schumpter's losers.) But that's the topic of another post.

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