The Wall Street Journal, on its editorial page, writes about a company called Standard Textile, whose economic viability is apparently being threatened by the 25% tariffs on imports of its main production input: a type of fabric sourced from China and known as greige, which I believe is basically the fabric as it comes off the loom, unfinished and un-dyed. The company is especially concerned because finished products from China which compete with its own products are tariffed at only 6.7%. WSJ uses this example to argue that Trump is all wrong on tariffs, and does so in the rather superior manner (the title of the piece is ‘a looming trade lesson’) which is common among those who ascribe any objections to absolutely free trade as based on nothing but economic ignorance or political demagoguery.
I will stipulate that it seems rather dumb to tariff raw materials and intermediate goods at a higher level than finished products made from these inputs. But..is it really true that greige fabrics are available only from China? A few minutes of searching suggests that they are available from India, and from at least some US suppliers. Maybe there is some particular variant of the products that is only made by a specific Chinese supplier, or maybe Standard has negotiated such a great deal with their supplier that no one else will match the price–it would be interesting to know.
The big question that the WSJ didn’t ask is: Why is this fabric (if it is truly unavailable in the US) not manufactured here? Textile manufacturing is not generally a labor-intensive activity, it is very different on this measure from the transformation of the textiles into apparel and other finished products. It was one of the first industrial activities to be mechanized, and automation in this field has advanced steadily over a couple of centuries. Moreover, textile manufacturing uses significant amounts of power, and I’ve read about Chinese firms that moved to the US specifically because the electricity was cheaper and more reliable. So the usual arguments about why a particular item needs to be made in China or other non-US setting…labor costs, less-stringent environmental restrictions…don’t seem to really apply here.
Most likely, greige manufacturers tend to locate in Asia and other non-US locations because that is where their customers are…’customers’ here referring not to end consumers but to apparel manufacturers and others who buy the material as an input to their own processes…and geographical proximity is of value in being able to fill orders rapidly and without excessive shipping costs. So this is an example of how supply chains are interconnected, and how losing one industry in a chain tends to pull other industries away also. The same point has also been demonstrated in consumer electronics manufacturing, where the supply chain is now so centered in Asia, especially China, as to make it difficult for a company to produce these products in the US even if they want to. (And ‘supply chain’ in this sense does not include physical products, it also includes certain services. I have been told by the CEO of a medical electronics startup that she would find it difficult to manufacture in the US due to absence of certain specialized services; I believe she mentioned RF test facilities)
A serious analysis of America’s trade situation should involve more than quoting David Ricardo and lecturing people about their supposed economic ignorance. The WSJ article would have been more intellectually-honest and more useful had it also given examples of American manufacturers who are benefitting from the modified tariffs; these examples certainly exist.
Best of luck to Standard Textile. Hopefully, (a) the tariffs, if they remain in place, will be adjusted to level the rate between imported fabric and imported finished goods, and (b) US manufacturers of this fabric will come into being.