The Impact of Tariff and Imported Raw Materials on Textile and Clothing Export: Evidence from the United States Market
The textile and clothing industry is an important sector because of its contribution to the economy. It becomes an important industry which absorbs most workers, especially in the low labor-cost countries. The United States (U.S.) is the biggest market for textile and clothing products worldwide. Distorted by some protections, the trend in the U.S. textile and clothing market changes rapidly. One of the most influential agreements was The Multi-Fiber Agreement (MFA) with its quota restriction from 1974 to 1994. After the end of MFA, The Agreement on Textile and Clothing (ATC) toke into effect. This agreement set by the World Trade Organization (WTO) to eliminate the quota restriction gradually within 10 years (1995-2005) and use the tariff restriction. After the end of the ATC, the trade in textile and clothing becomes governed by the general rules and the multilateral trading system. Meanwhile, the tariff still becomes a burden for some countries, especially the ones which do not get a special tariff rate because of the lack of trade agreement with the U.S. Another challenge is the use of imported raw materials as the main input of production. This makes the cost of production sensitive to international price volatility. According to that, this study examines the impact of tariff and imported raw material on the export of textile and clothing to the U.S. market. Data from 23 exporters of textile and clothing products to the U.S. are analyzed using the gravity model with The Poisson Pseudo-Maximum Likelihood (PPML) estimator. The result shows that the higher tariff reduces the amount of textile and clothing export to the U.S. Market. Moreover, imported raw materials still become an important source of input in this industry.