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The Chinese cheap clothes menace

This Friday, Michael Jennings will be doing my last-Friday-of-the-month talk, about China. Emergence of, economic miracle, impact on rest of world, and so on.

And, as if determined to assist me in my efforts to publicise this event, the European Union, in the person of Euro-Panjandrum Peter Mandelson, has been uttering anti-Chinese fatuities:

The European Union has called on China to reduce its clothing exports to Europe or else face enforced limits.

That was the warning given by EU trade commissioner Peter Mandelson, as he launched an EU probe into nine categories of Chinese textile exports.

Exports of certain Chinese clothing items to Europe have surged by more than 500% since an international quota system came to an end on 1 January.

Heaven forbid that the people of Europe should be allowed to buy really cheap clothes, as much as they want. Clearly this is a retrograde step, and must be resisted.

“Europe” still lectures places like China as if places like China are the Third World, and Europe, obviously, is the first. But this has a very eighteenth century Asia feel to it, to me. Europe can no more prevent itself being swamped by, flooded with, etc. (although “sold” would be a better word) cheap clothes now than Asia could then prevent the incoming tide of pots and pans, cups and plates, and shirts, made in what was then the English workshop of the world.

This nonsense seems all to be based on some Agreement that was signed a few years ago. And it perfectly illustrates the folly of such agreements, which serve only to allow the supposedly protected industries to remain somnolent for a few more precious years, thereby to lose all touch with economic reality beyond the protections behind which they briefly shelter, to the point where the pressure of economic reality becomes so immense that it is impossible to resist, at which point the protection collapses and economic melt-down duly happens.

It also illustrates Public Choice Theory rather nicely. You can be sure that hundreds of desperate European shirt and trouser makers are even now busily conspiring to explain that Mandelson is talking sense rather than nonsense. Meanwhile the people whom Mandelson is trying to harm (everyone else in Europe plus many thousands of poor workers in China) will be too busy with other things to object very loudly. After all, each of us will only suffer a bit, and anyway, what can any of us do if the EU/Peter Mandelson has decided to harm us all, a bit. That is not news. That is Euro-business as usual.

In due course, the benefits to all of us of free trade with China will be concentrated into the hands of a few illegal clothes importers. But the clothes will not be quite so good or quite so cheap.

Reuters reports on the Chinese response here. My thanks to Alex Singleton of the Globalization Institute for the links, via this, which continues to happen at the ungodly hour that was originally promised. Tim Worstall comments on the same story at the Globalization Institute blog, making similar points to mine about the concentration of the (temporary) benefits associated with protection, but the dispersed nature of the costs, and about how previous restrictions have only stored up trouble.

Meanwhile, how else is “Europe” responding to the menace of people working too hard? By having a law against it.

43 comments to The Chinese cheap clothes menace

  • cirby

    China is the Third World.

    The Third World, however, ain’t what it used to be.

  • Isn’t there a little town in China called “Eu”? The Chinese could put tags on all their clothing saying “made in EU”. Or is this just a rumor, like the Japanese town of “Usa” which I heard was similarly used years ago?

  • I'm suffering for my art

    I threw my remote at the TV when I heard of the EU’s perfidy towards the European consumer. That organisation in Brussels is rotten to the core.

  • Thanks, Brian, another excellent example of the EU’s malignancy that I can put to use in my debates with irresolute acquaintances!

  • veryretired

    The point that seems to be missing in all this hubub about the yellow peril, and Indian outsourcing, too, is that these societies are building huge middle classes. What do we know about the middle class? They like the big and little things that make life better, easier, and more enjoyable.

    In short, these are emerging markets whose voracious demand for all things financial, medical, high tech, etc., etc., may very well define the world economy for the foreseeable future.

    Regardless of the lamentable political situation in China at the moment, or the beaurocratic nightmare of doing business in India, we are talking 2 billion plus potential users of Gillette razors, or consumers of Kentucky Fried Chicken, or buyers of Dell computers, not to mention customers of banks, insurance, and finance companies who operate cleanly and transparently.

    Asia is not a problem— it is an enormous opportunity for those with the vision to see the world economy as a living, growing thing instead of a stunted bansai needing to be trimmed here and tied off there.

  • Gary Gunnels


    Well, whatever may be happening in European politics, that fact is also not lost on European companies; which is why Thomson, Chanel, Renault, ELF, Carrefour, etc. have so heavily moved themselves into the Asian markets.

    BTW, did you see the “60 Minutes” piece on medical-tourism to India and Thailand?

  • Gary Gunnels

    Anyone else notice the French judge’s ruling re: DVDs & “lock software?”

  • veryretired

    Gary–no I didn’t but of course there are any number of businesses trying to get a foothold. The problem that has been reported repeatedly is that the corruption and lack of basic business procedures makes it very difficult to function. The legacy of the maoist period, or forever, for that matter, makes doing business very, very much like playing the slots in Vegas. Also, the fluid legal system makes it difficult to get contracts and labor rules enforced.

    It may be that the marxist experience is so corrosive that it will take quite some time for China, or Russia, for that matter, to work its way out of the morass of endemic corruption, the politics of pull, banking and other financial institutions with no concept of proper accounting procedures and transparent operations, etc.

    My take is that this is a very long term process, and too many people are much too impatient that everything just bloom like a rose right now. Especially when it comes to China, I think glacial movement is a better analogy than a bottle rocket.

  • James

    I could certainly have done without the silly “48 hour” over the last 3 years. I’ve smacked against it on several occasions. In fact, the end result of it was often more stress in the end.

    Thankfully, being in the U.S. I’m no longer subject to it. With China as a potential emerging market, prepare to see Europe take a hammering. If things go as expected (i.e. the EU uses laws to stifle competitiveness) then there’ll be plenty of fodder for parties like the UKIP.

  • This I think is the principal point I will be making on Friday, I think. The west has been buying things from China in large quantities for a decade or so, but what has been happening in the last two or three years is that they have suddenly started buying things from us in quantities so large that this is having a huge impact on all kinds of western businesses. Many of the things being sold are expertise and services that do not show up in trade statistics, too. (For instance, China’s infrastructure boom includes a lot of huge bridges being designed and built by European engineering firms).

  • GCooper

    Michael Jennings writes:

    ” Many of the things being sold are expertise and services that do not show up in trade statistics, too.”

    Are you sure of that? I was under the impression it depends which statistics you use.

    Nevetheless (and this is absolutely no argument for protectionism) we are facing an enormous balance of payments problem with China in the future and a solution will have to be found. I’m surprised how few economists seem willing to tackle that subject.

    Then again, maybe I’m not.

  • rosignol

    “Europe” still lectures places like China as if places like China are the Third World, and Europe, obviously, is the first.

    “Europe” doesn’t just do that to “places like China”- it does it to pretty much everywhere that isn’t “Europe”.

  • Gary Gunnels


    Well, my own country (the U.S.) does its own fair share of lecturing and China is into lecturing these days as well.

  • Ted Schuerzinger

    I didn’t see the 60 Minutes piece on medical tourism, but I just heard a CBC feature on Radio Canada International the other morning about the same topic, and needless to say, the government monopolists were apoplectic about it. My favorite argument was from the woman who claimed that people who go abroad for joint replacements still pose costs for the Canadian health care system, because they have “complications” and need things like physiotherapy when they return to Canada.

    Not that they’d have such needs if they got the surgery in Canada, but then the point is that they wouldn’t get the surgery in Canada….

  • Bernie

    GCooper said, “Nevetheless (and this is absolutely no argument for protectionism) we are facing an enormous balance of payments problem with China in the future and a solution will have to be found. I’m surprised how few economists seem willing to tackle that subject.”

    Please explain what the balance of payments problem might be. As far as I can see if people in the UK buy 5 million pounds of goods from people in China but don’t sell more than 1 million of goods to people in China that only means we bought more from them than we sold to them. So what? Where’s the problem?

  • Perhaps GCooper can tell us whether economists have ever concerned themselves with the huge balance of payments problem I have with the places I shop, or the one my employers have had with me. In any given transaction money always seems to flow in only one direction.

  • Gary Gunnels

    Ted Schuerzinger,

    I thought the story was great. My wife and I were nodding our heads saying in unison, “Finally, some competition to drive down U.S. health care prices.” The service you get at these hospitals in India, etc. is impeccable from what I could see, most of the doctors appear to have practiced either in the U.S. or Europe at the best institutions (not that will likely be an issue in years to come given the class of talented doctors and surgeons these guys are training over there), etc. Hell, the entire staff (aside from the doctors) are RNs! The cost is something like 1/8th what you typically pay for any procedure in the U.S., and they do not push out of the hospital; they let you stay as long as you want to and appear to have plenty of room for such.

    Honestly, if I have serious health-care problem, I know where I am being treated, and it isn’t the U.S.A.

  • Gary Gunnels

    As I recall, one man had a quadruple bypass for a little over $20k, which would have cost him over a $100k in the U.S. And he stayed at the hospital for two weeks after the surgery. Shit, in the U.S. two weeks of simply staying in the hospital costs $20k or more, much less the procedure!

  • One note on the 48 hour maximum work week/on-call hours count legislation, it illegalizes the one person private practice. There are 168 hours per week. You must provide coverage during all those hours. A one person shop simply can’t do it. Four people must be on-call.

    Urban areas are not so bad, the four or five medical practices in a town that can support that many doctors simply take calls for each others’ patients. For a small town with one doctor, it is impossible.

  • I'm suffering for my art


    A few have made it to the holy grail that is penetration of the Chinese market, however many more corporate corpses litter the wayside. It’s not ‘competition’ in the Chinese market – more commercial warfare. All’s fair…

    Western companies go there salivating at the thought of the huge, increasingly prosperous market and are confronted by local competition, super-evolved to their surroundings. The Western company is taken apart by utterly dodgy practices. Often, they’re consumed from within by local partners who are bribed by competitors or rampantly embezzling or both. The hobbled Western company turns to the Chinese legal system and finds no recourse – the network of guangxi has shielded the perpetrators nicely.

    The reality of the Chinese market means the demise for many Western companies trying to operate there. However, there’s a flipside to that coin. China has no truly world class multinationals, and none look like developing soon. That’s because Chinese companies know how to operate in China very, very well. However, they’d be totally lost in a Western market – which is where the growth opportunities are. This is an interesting fact to counter those overly optimistic folk who seem to think China is going to overtake the USA – nay, take over over the world. Where are their mighty companies that are going to bestraddle the globe? Here are some pretenders, and this is the best they’ve got:

    Baosteel, a huge steel (duh) manufacturer. It’s doing great guns at the moment, riding high on soaring steel prices. However, it has a bunch of unprofitable companies the state forced it to acquire a few years back. Oh, and all the accompanying workers and their families who require health, work and housing. When steel dips Baosteel’s dud assets could easily pull it down. Especially in the likely occurrence that the govt forces it to take on more failed State Owned Enterprises that the commies don’t want to close down.

    Let’s not forget Haier, who have cornered the (enormous) college dorm bar fridge market in the US.

    And Legend, the Chinese computer maker, who bought HP’s ailing PC assets. Legend do a good trade – the best – in their local market. But they’ll probably get stomped on by Dell everywhere else, just like HP were.

    Quite an intimidating lineup. Sell your off your blue chips while you still can, everyone, the Chinese are coming!! And we were worried about a few cheap shirts.

  • GCooper

    Bernie writes:

    “Where’s the problem?”

    That’s the trouble when people don’t study history.

    Go thou and read about the problems faced by the British economy in the early-mid 1960s.

    And be bloody grateful you (presumably) didn’t have to endure listening to Harold Wilson droning on about the ‘balance of payments crisis’ week in, week out.

    It’s a very real phenomenon and it will need addressing.

  • I'm suffering for my art

    Wow…I really should proof-read my comments before posting… full of grammatical errors!

  • Bernie

    GCooper writes “It’s a very real phenomenon and it will need addressing.”

    It might have been for Harold Wilson and his ilk (and I was around) but I don’t see a problem, at least not in a free market sense. If a company in Margate sells goods to a company in Brighton it gets money in exchange and both parties are happy with the deal. If lots of companies in Margate sell to lots of companies in Brighton then the same applies. Likewise companies from the UK trading with companies or individuals in other parts of the world. The geographical boundaries are irrelevant. So what is the problem?

  • GCooper

    Bernie writes:

    “The geographical boundaries are irrelevant. So what is the problem?”

    The value of your currency. If, as you say, you were around then, you no doubt remember the infamous ‘pound in your pocket’ episode. Some things don’t change. Birds eventually come home to roost. You have to have something your trading partner wants and a worthless currency doesn’t come under that heading.

  • The Wobbly Guy

    I have to agree with Suffering. The China chinese are so often focused on the short term gains that they do not realise the long term damage they are doing to themselves by unsavory business practices.

    Corruption is endemic and it won’t be long before China hits a brick wall because of that.


  • Rob

    I beleive in free markets, you know, the sort where all parties gain by the transaction. I understand and accept the theory of comarative advantage.

    As the owner of a manufacturing company I daily have to confront the challenge of Chinese competition.

    One of the less than free market transactions with which I am involved is the hiring and paying of labour. My company is governed by all kinds of regulation and taxation from the minimum wage to the provision of maternity leave. The associated costs make my company less profitable, which is a signal to me to either become more productive or exit the market.

    What makes me very uneasy is the thought that when talking of China, we’re not dealing with a conventional western free market democracy, instead were dealing with a one party dictatorship and the thought has crossed my mind that the parts that my company used to make, which are now coming from China might actually have been made in a forced labour (Laogai) camp, where prisoners are made to work for up to 20 hours a day in appalling conditions without pay.

    Try as I might, I can’t square that with my profit and loss account, nor with my concience as a lover of freedom.

  • Bernie

    GCooper writes ” You have to have something your trading partner wants and a worthless currency doesn’t come under that heading.”

    Quite right and I expect the prospects for the US$ are becoming pretty grim. If that is what you meant then it would seem to me to come under the heading of fiat money.

  • veryretired

    Suffering—I appreciate your comments, and agree with pretty much all of how you described the situation.

    Having said that, I think it is important to readjust our perspective as far as global trading is concerned. By that I mean it helps to remember that companies that used to be huge economic players whom everyone worried about and feared would control their markets with abusive monopolies and so on back at the beginning of the 20th century are mostly gone now, and their size wouldn’t make them a medium company these days.

    In my lifetime, the commies were going to bury us, the arabs were going to buy us, the Japanese were going to drive us into bankrupcy, and now the Chinese are going to rule the world. I didn’t agree with the conventional wisdom then, and in fact predicted many years ago that the Japanese didn’t have the internals to stay with us, and I don’t buy this Chinese threat either.

    The Chinese are an ancient and proud people. While they may never adopt the forms of representative government we have developed, or operate their businesses in the sort of super-national forms we have seen emerge over the last several decades, eventually they will be constrained by the realities of competition and financial necessity to adopt more open and transparent practices.

    What we are seeing now is very similar to the attempt by the Japanese to subvert reality with crony capitalism—trying to keep the old forms and graft them onto an international business system within which decisions must be made based on efficiency and productivity, not warped by the old boys’ network of political bosses and legal obfuscation.

    The reason capitalism works is that it is realistic in a way that artificial systems can never attain. I doubt the Chinese will be able to face that harsh reality for quite some time, and their economic development, while impressive, will be stunted from what it could be if they were not trying to have their rice cakes and eat them too.

  • I'm suffering for my art


    which are now coming from China might actually have been made in a forced labour (Laogai) camp

    I see you’re partly objecting to this on human rights grounds, which is obviously justifiable. However, you also seem to be using it as another unfair advantage that the Chinese manufacturer has over his Western counterparts. Thing is, the proportion of goods made in such places, in relation to the total amount produced, would be so miniscule as to be inconsequential. Besides, prison work camps are notoriously inefficient. I guarantee a reasonably well-run Chinese factory would produce goods considerably more cheaply than the average laogai. A laogai is not a threat to your bottom line.

    they will be constrained by the realities of competition and financial necessity to adopt more open and transparent practices.

    veryretired – When China hits that brick wall (and it will be painful), they may reform and adopt Western business practices. Or they may turn back the clock with a vengeance. Interesting times ahead, to be sure.

  • Winzeler

    Besides, prison work camps are notoriously inefficient.

    This is a fine example of capitalism dealing with an “unfairness” in the market. Someone being forced to work for 20 hours a day, even under threat of punishment, cannot consistently be as efficient as someone working on contract being paid to be efficient.

  • For GCooper.
    Yes, Wilson had problems with the Balance of Payments. He also had a fixed exchange rate.
    We have a floating exchange rate. So we do not have a problem. If the trade balance gets too far out of line for our exports of services and the capital account to handle, then the price of the currency will change. As it does, every minute, every hour of every trading day.
    The problems oyu mention are in fact, the best reason to stay out of the euro.

  • Rob

    I’m suffering for my art

    Thank you for your reply to my coment.

    I can’t claim be be an expert on the efficiency of laogai, nor for that matter on their contribution to the Chinese economy. What is of historical record is the contribution of slave labour to the German economy during WW2.

    Speer, Albert , 190581, German architect and National Socialist (Nazi) leader. A member of the Nazi party from 1931, he became its official architect after Hitler came to power. His grandiose but coldly eclectic designs include the stadium at Nuremberg (1934). A highly efficient organizer, Speer became (1942) minister for armaments, succeeding the engineer Fritz Todt. In 1943 he also took over part of Hermann Goering’s responsibilities as planner of the German war economy. From Todt, Speer inherited the Organisation Todt (OT), an organization using forced labor for the construction of strategic roads and defenses. Under Speer’s direction, economic production reached its peak in 1944, despite Allied bombardment.

    From my understanding, at this time 30% of the German economy was using slave labour shipped in from Holland, Poland the Ukraine and other places, and, despite the “notorious inefficiency” of slave labour they nevertheless managed to provide new roads, buildings and arms to support the Nazi war effort, many dying in the process.

    I’m not saying that the use of slave labour in China is on anything like that scale, but if a lump of coal mined in a laogai finds it’s way into a power station which produces the electricity to power the loom which makes the cloth that goes into the shirt that I wear to work next wednesday morning, then I am complicit in that slavery.

  • I'm suffering for my art

    Interesting you should use that point, Rob, because I was wondering whether I should use it when I wrote my original reply to your post.

    You’re right; Speer did improve the productivity of slave labour camps. However, he did this – and even his most grudging critics admit it – by improving their working conditions.

    Also, you’re right about Speer’s management of wartime production in Germany. It was achieved by – and this is one of the great ironies of the war – deregulating industry. Whilst the free societies of America and the UK created strong command structures to govern wartime output, totalitarian Germany cut red tape under Speer’s direction, which led to the productivity gains you mention.

    As a point of history, it became apparent after the war when the Americans and Brits did surveys of their bombing effectiveness, that they could have ended the war much sooner by targeting strategic industrial sites such as ball-bearings factories. The Allies, in fact, knew about these sites and bombed them – but not comprehensively enough. The damage was able to be repaired quickly and the German juggernaut rolled on. A second strike on these kinds of facilities would have finished them off properly. Easy to say in hindsight.

    I personally don’t have much of a problem with labour camps, assuming the conditions are more or less humane. China isn’t the only country in the world that still uses hard labour in a penal institution as a criminal penalty. I’m sure life in a Chinese labour camp isn’t a barrel of laughs. However, I am very suspicious of NGOs who report on such establishments – hysteria is their stock-in-trade. I see no reason to make an exception of the Chinese labour camps.

  • I'm suffering for my art

    Before anyone rushes to correct me, I’m also aware that the Nazi productivity gains were due to industrial output being concentrated on the war effort after Goebbels’s “Total War” speech. Prior to that, much of Germany’s industry continued to make domestic goods and the like, because Hitler – rightly or wrongly – was mindful of the demoralising effect of the deprivations experienced in Germany during WW1.

  • GCooper

    Tim Worstall writes:

    “If the trade balance gets too far out of line for our exports of services and the capital account to handle, then the price of the currency will change. As it does, every minute, every hour of every trading day.
    The problems oyu mention are in fact, the best reason to stay out of the euro.”

    I entirely agree with you about the Euro. And, yes, I am aware that the currency fluctuates in relative value.

    However, you are not addressing the question of what happens when you have nothing left that a seller wishes to buy, because your currency has become worthless. Or, alternatively, because you can no longer afford to buy anything.

    Both of these situations are the inevitable consequence of a massive balance of payments crisis.

  • David

    Sorry I came so late to this discussion. The underlying problem is not the desirability of Chinese products. Nor is it Chinese competitiveness. It is the Chinese state. Products are cheap because the government of China undervalues its currency as a matter of state policy. This creates anywhere from a 15% to 40% subsidy on Chinese exports and a de facto tariff of a similar proportion on imports to China.

    This is nothing new and was the practice of Japan, South Korea and Taiwan. The United States has begun to grow concerned and Congress is considering imposing severe tarrifs on Chinese products in retaliation.

    In other words, products from China are not cheaper by themselves, but are cheaper because the Chinese taxpayer subsidizes your purchase price. Something like how the European taxpayer is making it easier for airlines to buy A380s well below their manufactoring costs – i.e., government subsidies. It’s not capitalism folks, it’s economic warfare.

  • I'm suffering for my art

    Well, that’s the line the American government would have us swallow. In reality, they know that if the Chinese floated the Yuan by removing currency controls, the sickly banking sector would collapse as people withdraw money from the banks en masse. Congress won’t do anything about it for this reason. An economic meltdown in China would throw the entire world into recession, and have untold political consequences. However, if Congress makes a lot of noise domestically and blames the Chinese they can dodge responsibility for the American economy’s structural problems.

    Incidentally, in regards to maintaining an undervalued currency against the greenback – most of Asia plays that game. It’s not just the Chinese.

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  • China should open up its markets and welcome outside investment.

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