U.S. Textile and Apparel Industries and Rural America
Cotton is the single most important textile fiber in the world, accounting for nearly 80 percent of natural fiber use and more than one-third of total fiber demand worldwide. Both U.S. and foreign demand for cotton products by consumers has grown significantly since the end of the 1990s, and textile mills around the world have expanded their cotton consumption accordingly. Despite this global boom, the U.S. textile industry's demand for cotton fell sharply. Competition with imported products has reduced capacity in the U.S. textile and apparel sectors, and the domestic textile industry no longer consumes the majority of U.S.-produced cotton. Consequently, analysis of the U.S. textile and apparel industries is vital to understanding cotton production and prices.
This chapter discusses the trade issues, experience of the textile and apparel industries, regional impacts, and related labor market impacts since the mid-1990s. (See Definition of U.S. Textile and Apparel Industry for details on the industries included in this analysis.) As textile and apparel trade liberalized over the last few years, production shifted to countries with lower wages, and the United States imported more apparel. As a result, many U.S. textile and apparel plants closed; some firms went out of business; and others relocated production overseas. The United States lost more than 900,000 textile and apparel jobs from 1994 to 2005.
U.S. rural areas have been disproportionately affected by the loss of textile and apparel jobs, particularly in the Southeast, where textile and apparel plants are concentrated. On December 31, 2004, the last remaining import quotas on clothing and textile products expired. The resulting freer trade will further increase competition in the sector; probably, lower prices of these goods; and further decrease U.S. employment in these industries. Trade liberalization in textiles and apparel will produce gains and losses, similar to other initiatives reducing trade restrictions, but overall U.S. economic welfare is expected to increase.
Competitiveness and Apparel Production
Apparel production is labor-intensive, making wages a large share of the cost of production. Thus, relative wages tend to determine where clothing is produced. Over the last 200 years, rising U.S. incomes first shifted clothing production from within individual households to factories, and later concentrated it in lower-income regions of the country. Then, during the 20th century, clothing production migrated to foreign countries with wages lower than those in the United States.
Competition in apparel production is not entirely wage-driven. Highly skilled workers supported by good communication and transportation infrastructure can often compete with workers in countries with much lower wages and much less developed economies. However, as education and investment have risen in developing countries, wage differences have increasingly offset the productivity-enhancing attributes of the domestic U.S. clothing industry. Consequently, as import limits have been relaxed, production has shifted to non-U.S. locations.
Textile production (e.g., yarn and fabric) is more capital-intensive than clothing production, but to some extent is concentrated in countries where clothing production is important. Yarn and fabric are internationally traded, but coordination between apparel and textile producers is often enhanced--and costs reduced--when both are produced in the same country. Textile producers, therefore, may find it beneficial to be located near clothing producers, who are their customers.
The Multifiber Arrangement Phaseout
The World Trade Organization's (WTO) Agreement on Textiles and Clothing (ATC), which was part of the 1995 Uruguay Round Agreements, mandated phaseout of import quotas sanctioned for decades under agreements such as the 1974 Multifiber Arrangement (MFA). The MFA was a system of bilateral quotas governing textile and apparel exports by developing countries to the United States, Canada, and the European Union. These quotas favored textile and apparel industries in developed countries by limiting import competition. The ATC called for a phased removal of bilateral quotas over 10 years, allowing time for producers to prepare for a more open international market. (See The World Bids Farewell to the Multifiber Arrangement for additional information.)
The United States, Canada, and the countries in the European Union were not obliged to remove substantial quotas in the phaseout's initial stages. These countries were only obliged to forgo the right to impose or maintain quotas for a given share of their imports, for example, 16 percent of their imports in Phase 1 of liberalization (1995). This 16 percent could include products where the quota was not an effective constraint, which was largely the case. For example, the quota on Men's and Boys' Work Clothing was eliminated in Phase 1, but since much of this quota had not been used, there was no noticeable increase in imports after 1994.
The same was true of Phase 2 (1998) and, to a lesser extent, Phase 3 (2002). As a result, the phaseout was effectively concentrated in Phase 4. In fact, 80 percent of the effective quotas--quotas that were limiting imports into the United States--remained in place through 2004. Given this concentration of quota removal in Phase 4, the full impact of the MFA's phaseout on U.S. market prices is only now being experienced.
MFA quota timetable
Phase Quotas removed on:
1 December 31, 1994
2 December 31, 1997
3 December 31, 2001
4 December 31, 2004
See Textile and apparel industries by quota removal phase Excel icon (16x16) for details on the phaseout by industry.
Because the MFA quotas that limited clothing imports were effectively reduced or eliminated, apparel and textile prices and production have declined in the United States. The "integration" of textile and clothing trade--out of the restrictive regime developed under the MFA and back into standard WTO rules that apply to world trade--has increased U.S. imports of these products. It also reduced the prices charged for clothing and reduced the profits, production, and numbers of workers employed by domestic producers. To some extent, the special safeguards the WTO will permit for China's exports will limit these changes, but the end of the MFA has significantly increased the ability of countries like India, Pakistan, and Bangladesh to export clothing to the United States. (See Textile and Apparel Trade After the Multifiber Arrangement for more information on textile and apparel trade policy, including safeguards.)
Textile and Apparel Employment Changes by Phase
The phased removal of quota restrictions affected trade and, as a consequence, U.S. textile and apparel production. As imports increased after 1994, U.S. production decreased, and U.S. textile and apparel job loss accelerated. However, changes in industry employment are complex. Job losses may also represent a number of other factors, including increased productivity, changes in demand, the 1994 ratification of the North American Free Trade Agreement, and exchange rate movements.
The more rapid employment decline of industries not integrated until Phase 4 highlights their greater vulnerability to import penetration, despite continued quota protection through December 2004. U.S. textile and apparel employment is roughly half of what it was in 1995, suggesting that future adjustments will be less disruptive than would have been the case if trade integration under WTO rules had occurred earlier.
However, the integration experience of more robust industries, such as Carpets and Rugs and Fabric Finishers, in earlier phases provides little insight into the possible magnitude of job loss in Phase 4 industries after January 1, 2005 and its impact on affected communities.
Most vunerable to job loss are U.S. counties deriving a large share of employment from Phase 4 industries, such as Chattooga County, Georgia, and Cherokee County, Alabama. (For a full list of counties, see U.S. counties deriving more than 15 percent of employment from Phase 4 industries Excel icon (16x16) .) As of August 2000, 57 counties derived more than 15 percent of their private employment from Phase 4 industries. This dependency makes them more vulnerable to import competition now that the quotas have expired. Twenty-six of these counties are surrounded by other counties that have considerable Phase 4 employment, suggesting a more limited ability to absorb displaced workers in the local labor market. These 26 counties are predominantly in North Carolina, South Carolina, Georgia, Alabama, and Virginia.
In addition to import vulnerability, the geographic concentration of Phase 4 industry employment suggests that if these plants close, laid-off textile and apparel workers may have difficulty finding new employment, in part, because there are likely to be other plant closings in contiguous counties. The Trade Adjustment Assistance program, which assists workers who have become unemployed as a result of imports, provides a variety of benefits including relocation allowances. However, relocation can be difficult, especially for homeowners, and few take the relocation benefit. (See Federal Programs and Policies for more information on Federal programs.) As a consequence, the adjustment to the Phase 4 quota expiration may be more difficult than that of the first three phases.
Textile and Apparel Job Loss in Nonmetro Areas
Textile and apparel jobs have been in decline for three decades. Technological improvements and import competition have reduced the U.S. workforce from 2.4 million in 1973 to 650,000 in 2005. The decline in textile and apparel jobs accelerated following the implementation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico in 1994. In late summer 2000, U.S. manufacturing went into a downturn, and in March 2001, the economy slipped into recession. Textile and apparel job loss accelerated again, with over a 10 percent loss of jobs each year during 2001-03. Continued job loss is expected in the future, as the Bureau of Labor Statistics projects that the textile and apparel industries will have the most rapidly declining employment rates of all industries over 2004-14.
While jobs in all manufacturing industries have also declined, textile and apparel jobs are of particular interest as these industries are the most geographically concentrated and are disproportionately located in Southeastern nonmetro counties. This region also has the highest rate of rural poverty. In 2002, one-third of all textile and apparel employment was located in nonmetro U.S. counties. (See Geographic Concentration of Textile and Apparel Industries for a comparison of selected industries using Lorenz curves.)
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In addition, there is concern about the difficulty that textile and apparel workers encounter when they are laid off. Of all employed U.S. workers in 2003, textile and apparel workers were, on average, older, less likely to have a high school diploma, and less likely to be a U.S. citizen. These characteristics might make it difficult for laid-off textile and apparel workers to find new jobs. See Demographic and job characteristics of textile and apparel workers, 1997 and 2003 Excel icon (16x16) for further details.
How Have Laid-Off Textile and Apparel Workers Fared?
During 1997-2003 in the United States, 297,000 textile and apparel workers were displaced from their jobs, of whom 132,000 (44 percent) were nonmetro workers. Displaced workers are those who lost their jobs because their plant or company closed or moved; their employer had insufficient work; or their position or shift was abolished. Moreover, displacement as measured includes only workers who are 20 years old or older with 3 or more years of tenure on their lost job. As a consequence, the number of workers considered displaced is smaller than the number of jobs lost over 1997-2003.
The experience of nonmetro textile and apparel workers generally paralleled that of metro textile and apparel workers. However, both groups experienced more difficultly getting a new job than displaced workers in the U.S. economy overall.
- Nonmetro areas bore a disproportionate share of textile and apparel job loss--44.5 percent of all displaced textile and apparel workers were nonmetro residents. This is more than double the nonmetro share of the U.S. labor force (18 percent) and the nonmetro share of all displaced workers (16 percent). It is also more than the currently employed nonmetro textile and apparel workers' share of all employed textile and apparel workers (30 percent). Displaced textile and apparel workers were overwhelmingly located in the South--91 percent for nonmetro workers and 44 percent for metro workers.
Displaced textile and apparel workers, like employed textile and apparel workers, were more likely to be female than all displaced U.S. workers, and also were less likely to have a high school diploma.
- Textile and apparel workers were more likely to drop out of the labor force than other displaced workers. Consequently, a smaller share was employed when surveyed, 61 percent, than employed displaced workers from all industries, 69.5 percent. Of those who found a new job, displaced textile and apparel workers had to look longer, about 23 weeks, versus 16 weeks for all displaced. Most displaced workers suffered earnings loss on their new job, with three-fourths making less on their new job than on the job they lost.
Since the demographic and job characteristics of current textile and apparel workers is about the same as those of textile and apparel workers displaced during 1997-2003 (see Characteristics of displaced workers, 1997-2003 Excel icon (16x16) , for further details), it is expected that workers laid off in the future would have similar experiences finding new employment. However, this expectation is contingent on the state of the U.S. economy.
Possible Community Impacts
In addition to the effects on individual workers, there may also be an impact on rural communities. Closures of textile and apparel plants could significantly affect local tax bases. Also, many of these places may already have relatively low incomes and tax bases, so they may be hard-pressed to maintain public services, such as spending on local education.
In addition, Federal policies to assist displaced workers (see the Worker Programs section of the Federal Programs and Policies page) may result in the workers' moving away to find another job. Although workers may benefit from relocation, the communities where the plants closed may suffer. Such communities may benefit from other government programs that deal with general business development, infrastructure, and housing. ERS research has shown that, in the Southern rural counties where many of these textile and apparel plants are located, Federal community resource programs (including infrastructure, housing, and business assistance) tend to provide fewer dollars, per capita, than rural areas receive elsewhere, and significantly fewer dollars than urban areas receive. The effects of this disparity are particularly notable in the socioeconomically distressed, crescent-shaped region in the South where Blacks make up a relatively high percentage of the residents. (See Federal Funds in the Black Belt PDF icon (16x16) for further details.)
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Textile and Apparel Trade
U.S. Textile and Apparel Industries