The Travels of a T-Shirt in the Global Economy

The shipping container stacked with T-shirts boards the freighter in Shanghai and heads back across the Pacific.¹ The ship travels south along the western coast of Mexico and squeezes through the Panama Canal before heading north to the Miami port, and finally to the screen-printing factory at Sherry Manufacturing. At this point, the T-shirts enter the most complex and challenging phase of their lives: trying to gain access to the U.S. market. Chinese T-shirts and Chinese immigrants have similar experiences in attempting to get to America. In both cases, the journey is expensive, risky, and often illegal. There is an army waiting on shore, ready to fight the invasion. The U.S. apparel industry has lost the race to the bottom, and while this may be the result of a “happy concurrence of causes,” as David Hume suggested in 1748, not everybody is happy about it. Most of the American South has moved onward and upward from textile production, but there are pockets across the Carolinas and Georgia where the mills are still at the center of the economy and the community. Losers in the U.S. textile and apparel industries are not going gracefully, especially not when losing to China. The textile and apparel trade is the most managed and protected manufacturing trade in U.S. history, or, as one writer noted, “the most spectacular and comprehensive protectionist regime in existence.”²

When Auggie Tantillo sees a T-shirt from China, he gets a bad feeling in his stomach, but his reflex is fight rather than flight. Auggie can go into Wal-Mart to buy soap or batteries, but he can’t even walk by the clothing without the feeling coming back, so he avoids that section of the store entirely. Auggie is executive director of the American Manufacturing Trade Action Coalition (AMTAC), an advocacy group dedicated to preserving manufacturing jobs in the U.S. textile and apparel industries. Auggie represents not so much a “special interest” as a moral viewpoint. As the youngest of nine children in a traditional Sicilian family, Auggie is used to fighting for his fair share. He is soft-spoken, fiercely intelligent, and very sure that he is right. Auggie has spent his entire adult life on defense, trying to block or slow the waves of cheap clothing imports flowing into U.S. markets. For 35 years, the waves have been growing bigger, but he keeps bouncing back, ready to block and punch.

But Auggie thinks the fight with China could be the last. Between 2000 and 2007, the U.S. textile and apparel industries lost more than one-half of their remaining jobs, and looming on Auggie’s horizon—and on the horizon of manufacturers everywhere—is the China threat, as well as a new set of rules to take force in 2009. Auggie believes that U.S. producers of yarn, fabric, and apparel have no hope of competing with China under the new rules, even as costs in China increase and the Chinese firms experience threats of their own. Unless somebody stops China, it will be all over, Auggie told me. Waves of T-shirts, socks, underwear, caps, sweaters, pants, and ties will come flooding in, and will drown the U.S. textile industry within the decade, along with the industries in dozens of other countries. Unless somebody stops China, there won’t be another war to fight because there won’t be an industry left to save.

Auggie used to have a bigger army in the war against apparel imports, but one by one his fellow soldiers have dropped out, or worse yet, defected to the dark side. The AKA (American Knitwear Association), ASA (American Sweater Association), and TIA (Trouser Institute of America) are all gone now, the industry associations having no raison d’tre without an industry. In 1991, more than half of Americans’ clothing was produced domestically, but in 2007, 95 percent of the 20 billion garments Americans purchased were produced overseas.³

In 2003, I met with executives of the American Textile Manufacturers Institute (ATMI), which for half a century had been the booming voice of the industry in Washington, where congressmen would answer their calls on the first ring, and even U.S. presidents made sure to stay friendly. When I went back a year later, the ATMI was gone, having shrunk and consolidated with other gasping textile associations into a shadow of itself, a shadow that often did not get its calls returned from Capitol Hill. Worse than the soldiers who have faded away, however, are the defectors. A Rolodex full of former government officials and even members of Congress are now across enemy lines, arguing not just for free trade in general but for free trade in T-shirts in particular.

Auggie understands the pull to the dark side. Increasingly, that is where the paymasters are, the rich retailers, the powerful China lobby, and all of the U.S. apparel firms that are now just importing machines. Auggie understands that there are more realists than idealists in Washington, though he himself isn’t one of them. For most of his life, the manufacturing job news released every month has been bad news, and Auggie seems to take each layoff personally. But he also knows that without his relentless scuffles, there would be fewer jobs still, so he keeps going. Auggie also knows that, in the long run, he will lose. But on the way to losing there are victories, and these keep him energized. When Auggie can keep a factory open for a few more years, then a community will stay intact a while longer, a few more children will grow up with working parents, and a few more of them will be able to go to college. Every day a U.S. textile mill stays open is a win for Auggie Tantillo, and every day somebody keeps a job is a good day.

Though Auggie’s army is smaller than it once was, the troops are rallying in the fight against China. After years of squabbling and splintering, there is a renewed unity and purpose in the face of a common enemy. In July 2003, the leaders of the ATMI, AMTAC, NTA, AYSA, AFMA, NCC, ASIA, ATMA, CRI, GTMA, THA, AFAI, NCMA, and TDA joined forces in a powerful alphabet army to demand that the Bush administration take action against China.⁴ They demanded that the U.S. government institute “safeguard” quotas restricting Chinese textile and apparel imports, and also demanded that apparel from other countries be restricted in its use of Chinese fabrics. Weeks later, they fired off more specific requests, demanding immediate limits on Chinese knit fabrics, brassieres, dressing gowns, and gloves. In the meantime, a delegation from China flew to Washington to stop the madness, and the Bush administration had to decide whether to anger the Chinese—just when it needed China’s cooperation on dozens of other issues, ranging from North Korea to semiconductors to intellectual property—or anger Auggie, just when it needed his help in the upcoming election. The Bush administration sided with Auggie and restricted the imports from China.

In 2004, another election year, Auggie turned up the heat. As President Bush rushed around campaigning in the swing states, AMTAC filed about a dozen more safeguard petitions to restrict Chinese imports of goods such as T-shirts, cotton pants, and underwear.⁵ Unwilling to risk the wrath of the voters in the textile mills, the Bush administration again sided with Auggie.

Julia Hughes, Washington representative for the U.S. Association of Importers of Textiles and Apparel, is a leader in the opposing army, and has sat across the table from Auggie many times over the years. While Julia respects Auggie’s integrity and commitment, she just thinks that Auggie is respects Auggie’s integrity and commitment, she just thinks that Auggie is wrong, and that he and his troops should stop whining and join the twenty-first century. And besides, from Julia’s perspective, almost everything has gone Auggie’s way. As Julia sees it, Auggie’s army has had unfair advantages for nearly 60 years. Where Auggie sees a flood of T-shirts from China washing American jobs away, Julia sees the Chinese T-shirts as underdogs with both hands tied behind their backs, hopelessly handicapped against the political power of Auggie’s troops.

Most economists, of course, are on Julia’s side. Under the widely accepted doctrine of free trade, the best course of action for both the United States and China is for everyone to clear the ring and let the best T-shirts win. This is the best course for the United States, where access to the best T-shirts at the best prices will boost incomes; it is the best course for Charlotte, North Carolina, which is now a regional hub in the global economy; and it is the best course for developing countries, where, as we have seen, exports of textiles and apparel provide a route from rural poverty and a first step onto the development ladder.

But free trade may not be the best course—at least in the short run—for Kannapolis, North Carolina, where nearly 2,500 textile workers lost their jobs on a single day in 2003 when the Pillowtex factories closed, or for the nearby town of Mt. Airy, where 1,000 jobs disappeared along with the Gildan Hosiery mills in 2007.⁶

My T-shirt’s perilous journey home shows that the best economic policy from the perspective of the United States or even North Carolina does not make for the best politics, and that trade in T-shirts is not (yet) a contest of faster-better-cheaper on the part of competing businesses, but is instead a contest played out in the realm of politics. While the market forces powering the race to the bottom are strong, the political forces pushing back against the markets are strong as well, particularly in the United States. Trade flows in T-shirts are the result of economic forces but also the result of thousands of deals cut in Washington, Geneva, and Beijing, and politics are at least as important as markets in understanding the T-shirt’s journey. Many of the firms still standing in the U.S. industry do not believe that they should have to compete with sweatshops that pay their workers 50 cents an hour, and especially not with China, where cheating of almost every type is rampant. Better to build a fence to keep out the lions than to run an unfair race that can’t be won. The fence hasn’t worked as well as many U.S. producers would have liked, but it has slowed the competition down. Most of all, it has confused them.

The effects of political barriers to Chinese apparel to the United States are readily apparent. While Chinese apparel has captured approximately 85 percent of apparel imports in several other industrialized countries, as of 2008, China’s share of the U.S. apparel imports was approximately 30 percent.⁷ China’s victory in the race to the bottom is obvious when we examine its overall exports, but is far less striking when we examine its performance in the U.S. market (see Figure 9.1). My Chinese T-shirt, in particular, was one of the lucky ones. As Figure 9.2 shows, U.S. imports of cotton knit shirts from other regions have grown far more rapidly than have imports from China. As we will see, it is trade policy, not comparative advantage, that explains these patterns.

Auggie Tantillo and Julia Hughes spend their days in a Washington dance, following each other around the Commerce Department, the Congress, Customs, and the office of the U.S. Trade Representative, with Auggie trying to plug holes in the import dike and Julia trying to punch them open. Because Auggie and Julia are in constant motion, the trade policies governing apparel are in constant motion, as well. Textiles and apparel are subject to not only a higher level of trade protection but also a higher level of trade protection complexity than any imports into the United States outside of agricultural goods.

During the time that I was writing and revising this book, the rules governing apparel imports into the United States seemed to change almost daily. The rules governing how many T-shirts of which types could be sold by which countries; the fabric the T-shirts could be made of under alternative regimes; whether a collar counted as a “component” or a “trim” (and whether it mattered); where the T-shirt’s fabric could be dyed and “finished”; and, of course, tariffs, had all changed. In 1999, the rules did not look so bad for a Chinese T-shirt trying to enter the United States, but by 2003, the rules shifted against the Chinese in favor of producers in the Caribbean and Mexico. For a brief period in 2005, the rules were back on China’s side, though this had reversed by the middle of the year to leave Central American producers on top. By 2009, however, it appears that the rules will be back on China’s side, though not if Auggie Tantillo can help it.

However, in order for the apparel to have duty-free access to the U.S. market, it must generally meet the yarn-forward test, which requires that each step of apparel production from the spinning of the yarn “forward” take place in one of the member countries. For a T-shirt, the rule means that the yarn must be spun, the fabric manufactured, and the garment cut and sewn in a member country. In effect, the yarn-forward requirement is a boon for U.S. textile mills because it limits the ability of the Central American apparel producers to source yarn and fabric from elsewhere, and therefore creates a captive market for U.S. yarn spinners and fabric producers.

For some apparel, such as brassieres and woven boxer shorts, the fabric-forward rule instead applies. As a result, for this apparel a U.S. fabric manufacturer may source the yarn from Asia, for example, and ship the resulting fabric to a CAFTA country. When it returns to the United States as boxer shorts or brassieres, the import is duty free. This provision tosses crumbs to U.S. fabric manufacturers, who often feel politically overpowered by the yarn-spinning companies.

If the apparel is manufactured in Nicaragua and made of cotton or manmade fabrics (but not wool), a limited amount of apparel may enter the United States freely even though it contains yarn and fabric from outside the region. However, an exception applies to trousers, for which manufacturers must use at least half U.S.-made fabric. For all apparel made of wool, a fabric-forward rule applies, which means, for example, that a U.S. knitting mill could use Australian yarn and the resulting garment would retain its duty-free status.

Certain categories of apparel are allowed to be made of Canadian or Mexican fabrics, not to exceed specified annual limits, and some apparel may also use certain nylon yarns from Israel. Mexico can import some apparel free of duty from the CAFTA countries, but only if the apparel is constructed of U.S.-made yarn and fabric. For knit fabric (not apparel), a fiber-forward rule applies. This means a U.S. fabric manufacturer who produces T-shirt fabric must use American-grown cotton in order to retain duty-free status (some crumbs for American cotton farmers). Apparel linings must also meet the fabric-forward rule for the clothing to retain its duty-free status. Special rules are in place for Honduran socks.

Finally, in 2008 a multi-year negotiation over the pocketing provisions of CAFTA was finally settled. In the original agreement, the fabric that comprised the “essential character” of the garment was required to meet the various tests. For blue jeans, for example, blue denim would represent the “essential character” and would be subject to the rules. However, in 2008, U.S. textile interests were successful in inserting a pocketing provision that required that pocketing fabrics also meet the yarn-forward origination requirements. In the summer of 2008, the U.S. Association of Importers of Textiles and Apparel was offering seminars to help retailers understand the new pocketing rules.

Julia, Auggie, and the alphabet armies negotiated for years over the CAFTA provisions, in a telling example of the dominance of politics over markets in T-shirt trade flows. Julia and the U.S. retailers, along with the Central American countries, wanted to simply lift the gates and allow free access to the U.S. market for whatever apparel the CAFTA countries produced. Auggie Tantillo and AMTAC, along with the textile and apparel workers trade union (UNITE), opposed any free access at all for Central American apparel, believing, both procedurally and substantively, that “giving away” access to the U.S. market was bad policy. Some U.S. fabric manufacturers wanted a CAFTA fabric-forward rule that would allow them to produce with yarns from anywhere, while U.S. yarn spinners argued for the yarn-forward requirements. The complexity of the rules is perhaps inevitable, given the nature of these multiple opposing interests. In the end, the rules were hammered out in the only way possible given the disparate interests involved: sock by sock, pocket by pocket.

Equally complex but different rules govern T-shirt imports from Sub-Saharan Africa, under the African Growth and Opportunity Act (AGOA), and from Bolivia, Columbia, and Ecuador, under the Andean Trade Preference Act (ADTPA). Under the North American Free Trade Agreement (NAFTA), still other rules apply to T-shirt imports from Canada and Mexico, and under the Caribbean Basin Trade Partnership Act (CBTPA) another set of rules apply to apparel from 18 countries in the Caribbean.

To Julia Hughes, the only thing more outrageous than all of these rules is to hear them referred to as “free trade” agreements. According to Julia, a free trade agreement should make it easier, not harder, to trade. The poorest countries of the world, especially those in Africa, already handicapped on almost any dimension, cannot possibly succeed in such a byzantine tangle of rules, Julia believes, and many U.S. importers take one look at the rules and walk away. Trade from these areas is not free at all. It is easier and cheaper (at least once the time is factored in) just to pay the tariff and source from preference-free countries. Julia Hughes once tried to make sense out of the various free trade area provisions for her retail clients. She found, however, that she could not put them on a grid; they were all just too different. Auggie, for his part, believes that the retailers are responsible for the complexities: The complications, as Auggie sees it, are simply the result of all the exceptions that were made for Julia.

In 2008, cotton T-shirts that did not meet the requirements for “preferential treatment,” either because they came from countries outside the membership of AGOA, the CBTPA, ADTPA, CAFTA, or NAFTA, or because they did not meet the requirements regarding the origin of the fabric or yarn, were charged an import tariff of 16.5 percent, except if they were from Jordan, Israel, Bahrain, Peru, or Morocco. For these countries, bilateral agreements reduce the tariff to zero if the T-shirt passes certain tests, while for most Australian T-shirts, the tariff was 15.5 percent. As of July 2008, perhaps a half-dozen other free trade agreements were in various stages of negotiation or implementation, each, of course, with slightly different T-shirt rules.⁹ Finally, Vietnam—the country many believed would be the next stop in the race to the bottom—was subject to a special “monitoring agreement” that allowed the United States to take unilateral action to reduce imports if U.S. textile or apparel manufacturers were threatened.¹⁰

Complexities are apparent in the tariff schedule as well. The 2008 tariff schedule contains 97 chapters and 543 pages of explanatory notes. The knit apparel chapter alone is 75 pages long, not including explanatory notes. For some apparel, the power of particular companies is evident. Tariffs are nearly 30 percent on some categories of clothing, including, for example, Harmonized Tariff Schedule category 6102.30.20, which is:

Until 2005, imports for an additional 40 countries were limited under the umbrella of the Agreement on Textiles and Clothing (ATC).¹¹ The ATC in turn is the phase-out mechanism for the Multifiber Agreement (MFA), which had set quantitative limits, or quotas, on clothing and textile imports from dozens of countries since 1974. The regime, as we will see, had many effects: good, bad, and mostly unintended.

Finally, as of 2008, import quotas, or limits, remained in effect for dozens of categories of textiles and apparel from China (see Figure 9.3). Under the 2005 textile and apparel Memorandum of Understanding with China (MOU), these quotas were to be lifted on January 1, 2009, though what, if any, restrictions will replace them is the subject of the most recent scuffles between Auggie Tantillo and Julia Hughes.

In the summer of 2008, I attended a seminar for apparel companies in New York City. The seminar’s objective was to help the importing companies understand evolving complexities in apparel trade policy. Julia Hughes, as well as officials from various government agencies, gave presentations. I stepped outside for a few minutes, and when I returned I saw that a speaker from the Department of Homeland Security had taken the stage. The speaker, from the Office of Customs and Border Protection (CBP), displayed a PowerPoint slide that read:

I wasn’t sure why this was relevant to T-shirts. Brian Fennessey, the speaker, sounded vaguely threatening. “We know the bad guys are out there,” he boomed. “We know what they are up to and we know their tricks. Make no mistake. We’re going to track them down, and they will be sorry. ”

A moment later, I understood. Under pressure from the U.S. textile industry, the Department of Homeland Security had designated textiles and apparel as a “priority trade issue.” Inspections specialists at the country’s 300 ports of entry are responsible for keeping out terrorists and their weapons, but they had also been given special training and resources to stop socks and pockets that do not meet the complex rules. A leading law firm specializing in trade and customs matters advised apparel companies to stay calm if special agents showed up with guns and badges looking for fugitive socks.¹²

All in all, the restrictions and regulations governing apparel imports are written, administered, and enforced by hundreds of lobbyists and lawyers, as well as bureaucrats from the Department of the Treasury, the Department of Commerce, the Congressional Textile Caucus, the U.S. Trade Representative, and the interdepartmental Committee for the Implementation of Textile Agreements. In fact, a leading textbook illustrates the interlocking webs of government involvement in textile and apparel trade policy with a full-page map containing 11 boxes linked together by a dozen arrows.¹³ While the United States is the largest offender, it is not alone. As Richard Friman has shown, other rich countries also employ complex patchwork approaches to protecting their domestic textile industries.¹⁴

According to many, when the Chinese quotas are finally lifted in 2009, it will be the last nail for the U.S. industry in the sad story of plant closings and job losses that has lasted nearly 60 years. It will also mean the last nail for Auggie Tantillo and the alphabet armies who have fought to save the U.S. industry from the waves of cheap imports.

“It’s about time,” many people told me. More than a few Washington insiders muttered “dinosaurs” when I asked them about Auggie Tantillo’s troops. The Southern textile interests are living in the past, clinging to something that makes no sense in today’s global economy, people told me over and over again.

Chinese T-Shirts Versus American Jobs

A Taste of the (Crazy) Rules in 2008