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Trade-Offs

Warren Shoulberg Publisher/Editorial DirectorWarren Shoulberg Publisher/Editorial Director
THE DELICATE BALANCE that has been the Asian sourcing model for most American companies in the home textiles business is about to change...again.
     And this one is a biggie.
     There are of course some large, overriding issues impacting trade: A new leader in China, the re-election of President Obama in the U.S. and the overall slowdown in the global economy.
     But three very specific factors are impacting the way America deals with Asian sourcing nations, particularly China. Each is not mere speculation, but cold hard fact, and each will have a reverberating effect on what happens with India, Pakistan and other countries that have been major sources of home textiles supplies.
     1. The continuing collapse of the Common Market Economy in Europe. At the recent Canton Fair, orders from European importers were reportedly off 10%, coming on the heels of previous drops over the past 18 months.
     All of those Asian suppliers that previously said they would rather deal with Europe than the States - because business there is a little less cutthroat and there's more slack on consumer acceptance of higher prices - no longer have an outlet for EU business. Country after country is experiencing downturns throughout Europe, like so many dominoes, and unless you're an Asian supplier who sells almost exclusively to Germany, you're in trouble.
     The European meltdown will impact all Asian exporting nations.
     2. The China-Japan political standoff. In case you're not following world geopolitical headlines, China and Japan are fighting over a few scraps of rock in the Pacific, each claiming to have sovereignty. Right now Japan controls them and that is causing a massive boycott of each nation's exports to the other. Japan is feeling it the most in industries like automobiles and travel, but China is getting hit pretty hard, too.
     At that same Canton Fair, orders from Japanese countries were off a reported 30%.
     The U.S. doesn't import a whole lot of Japanese textiles products so that's not the impact here. But what is playing out is that Chinese exporters have to find new markets for their products, and guess where they are going to look?
     While this issue primarily impacts Chinese companies, everything is connected these days, so it won't be isolated to just these two countries.
     3. The Chinese middle class will be arriving a little later than expected. This one is a bit more amorphous and hard numbers are difficult to come by, but nobody will dispute the fact that the big bubble of the growth of the middle class in China is going to be delayed from original projections.
     By how much and for how long is just speculation. It's happening and it's happening right now. This impacts not just Chinese companies but those elsewhere in Asia who were hoping to supply this demographic with consumer products.
     Put all three of these factors together and they equal an Asian sourcing model in transition. Up until very recently, exporters had many directions in which to go to gain business. Increasingly, they have one: East to the U.S.
     The American economy may not still be anything to write home about, but it sure beats the alternatives for Asia.

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