---

Twenty years ago, Pietra Rivoli traced a T-shirt’s lifecycle from a cotton farm in Texas, to factories in China, and then to the backs of people all over the world. Her book, Travels of a T-Shirt in the Global Economy, explained how U.S. trade policies affect global supply chains. In the following interview, which has been edited and condensed, we discussed how those supply chains might change as the United States grows increasingly wary of products made in China.

Q: It’s been almost ten years since the most recent edition of Travels of a T-Shirt in the Global Economy came out, and 20 years since it was first published. What inspired you to write the book?

A: What inspired me was dissatisfaction with the party lines that I was hearing on both sides of the trade and globalization debate. I was trained as an economist, where the advantages of liberalizing trade and reducing trade barriers are unquestioned. So if a country wants to get wealthy, then one of the clearest policy prescriptions that economists have is to reduce trade barriers.

But there was another party line that maybe wasn’t as sharp in its analytical rigor, and was also a bit more diverse in terms of its motivations. But it had echoes of what we’re hearing today, which is that people have concerns about the adverse effects of trade. These two viewpoints were difficult for me to try to reconcile. There are some things that you can answer with empirical research, and we’ve done a pretty good job in the field of economics of evaluating things with a research methodology. But I really wanted to get out into the world and see if I could make this debate a little bit more concrete. I didn’t start out with a plan to arrive at a certain answer. I wanted to see where this story led. 

I loved getting out and trying to understand both the academic research related to certain topics, but also seeing with my own eyes what was going on. I really do think this approach could still be very effective. You’re trying to thread a needle because you want your work to rely on academic research, but you also want it to be informed by the world. 

In the book, you describe the complex system of global supply chains. How does this system work and what are its advantages and disadvantages?

The primary advantage is in line with the standard economic logic, which is that this trade is good for consumers, and it improves wealth in low-income countries. If you look at what has happened to the price of clothing over the past generation in real terms, it’s fallen by something like a half. If you’re a family, you have had big advantages from this liberalizing regime in terms of being able to buy your kids clothes. From the consumer perspective in wealthy countries, there’s been a huge boom. 

Now, on the manufacturing side in emerging market countries, there’s also been a huge boom. I was first in China in 1983. I’m five foot six, and I was about a foot taller than everybody my age, because literally, people had grown up starving. And now, you go to China, and you see essentially a first-world country, especially in the cities. How did that happen? Well, a lot of it was by selling things to the wealthy consumers of the West. In terms of improving human welfare, there’s a very positive story to tell, both for the consumers and the producers.

On the negative side, the biggest challenge has been dislocation in wealthier countries. We [in the United States] don’t have people sewing clothing anymore, at least not very many. 98.5 percent of our clothing is imported. All of those workers who used to be engaged in that had to find other ways to make a living. That was traumatic. It’s still traumatic. 

What are the reasons why these global supply chains might continue to stay in place, or how might they change? 

They’re already changing. What you have to remember is that the economic logic of trade is rooted in differences. If you have two identical countries, then there are going to be very minimal gains from trade. The reason there were so many gains from opening up trade with China is because the countries were so different. The U.S. had huge advantages in things like financial services or high-tech products. China had huge advantages in shoes and apparel back in the year 2000. And the reason that those advantages were so different was because the fundamentals of those economies were so very different. And that’s going to create huge opportunities for businesses in China, for consumers in the U.S., for importers here. But those huge profit opportunities are rooted in big differences in what the economies look like. 

Today, you have a great deal of convergence. The economies look much more similar, and I’m not talking about the politics now, but just the economics. Twenty or so years ago, education levels in China were maybe half that of the United States. Today, they’re quite similar. So, if your labor force looks the same, then you’re not going to have big advantages in producing one thing in one place and one in another. The underlying economic motivations for these global supply chains are shrinking as these countries look more and more like one another. 

When you were watching trade barriers come down in 2009 and textile quotas were being removed, did you have a feeling that the turn toward freer trade would be as short-lived as it seems to have been, or did you think that it would stick around?

This is possibly a bit of a simplistic view, but back in 2003 or 2004, there was this term in the business press that people used, and the term was the ‘China price.’ And the China price for, say, a widget, was roughly 30 percent lower than the U.S. price. That’s a pretty big motive for you to go and buy from China. Now, if the cost advantage shrinks to 10 percent, it’s not clear it’s going to be worth the trouble.

And that’s kind of where we are now. The cost advantage has been shrinking so rapidly. I don’t want to really call that a turn away from free trade. That’s just businesses making decisions to maximize profits. If you look at the data, you could say trade as a percentage of overall economic activity has flattened. But that’s what we would expect given the convergence that I’m describing.

…tariffs have become politically feasible again, partly because the economics of trade have become less compelling… If you look at manufacturing cost data in China, it’s just through the roof. It’s just a lot easier to put tariffs on now than it would have been 15 years ago.

At the same time, America seems to have embraced tariffs and industrial policy more in the past eight years. How might those new trade barriers affect the future of global supply chains?

Before answering that, I would go back and say, OK, if I’m a politician and I want to impose a tariff, is that going to be politically feasible? If American companies are importing from China at a 30 percent discount price from what they could in the U.S., then no, that tariff will not be politically feasible. So tariffs have become politically feasible again, partly because the economics of trade have become less compelling.

That’s the key thing that’s missing from the dialogue now. If you look at manufacturing cost data in China, it’s just through the roof. It’s just a lot easier to put tariffs on now than it would have been 15 years ago.

Do you think that U.S. trade with other countries will increase as a result of these moves? 

Absolutely. It’s like the story of the little boy trying to keep the boat from sinking. If you plug one hole, things are going to come in more forcefully through other holes. So certainly, the tariffs on China have pushed production in some of these goods to, depending on the good, Mexico or to Vietnam or to Bangladesh. 

How strong of a force is U.S. policy in shaping these global supply chains? Are they going to take a certain shape no matter what the United States is doing, or are the decisions made in Washington still shaping these supply chains?

Policy always matters. Businesses are also pretty smart about circumventing policies that are not in their interests. But policy is always important, especially when you put subsidies, or tax rebates in place, then you’re changing what’s profitable for a company to do.

Do you think that the strength of U.S. policy has changed over time? Does it carry the same amount of force now as it did 20 years ago, say? 

There’s probably less intellectual convergence across countries than there was 20 years ago. You have a lot more countries doing their own thing. You have a very weakened World Trade Organization. So that power has decentralized down to the national level. You look at something like Brexit, where the UK just kind of said, we’re out of this [the European Union]. What has really changed is the power and influence of these bodies like the EU or WTO.

One area of convergence, while not total, seems to be agreement in the United States and Europe on China. But how replaceable is China in global supply chains? You mentioned some other countries, but could any of them on their own or even altogether replace China?

Certainly not in the near term. There’s no single other country that could replace China. China has had many years of building up these capabilities. There are definitely countries that can step in for certain goods and services. For example, at the lower end of the value chain or skill levels, textiles and apparel have moved dramatically to places like Vietnam and Bangladesh.

For the more advanced supply chains, such as auto parts, those require different levels of institutions, different kinds of skill levels. And that’s a little bit trickier. Although India has the labor force, it doesn’t yet have the institutional foundations that China does, for example. It doesn’t have the infrastructure that you need, such as all the ports and the roads and the electricity and so on. But India, as well as the continent of Africa, is going to have a huge demographic advantage, because they’re really the only place with either a stable or growing labor force. 

How long do you think that it would take to see such a shift? 

It all depends on the product complexity and research intensity. We are already seeing the higher complexity things move to Mexico. As education levels rise, that’s the fundamental driver of whether you can produce more complex goods and services. And when you find places where the government is making those educational investments, then you can start to predict where some of this higher value stuff will go.

Rather than buy some of those complex goods like electric cars or auto parts from China or chips from Taiwan, is it sensible for America and Europe to spend billions of dollars manufacturing those things at home?

Well, that depends on what your objective is. If your objective in the near term is to have the cleanest possible environment, then you want to buy as many cheap electric vehicles and solar panels from China as you can. If that’s your objective, then I would say no, you don’t want to produce that stuff here at three or four times the price. 

If you are a manufacturing union or union member, then you want that production to be in the United States. All of us wear multiple hats. And the tricky thing with these questions is you have to decide, whose hat are you wearing? Because any one of these policy changes is going to be good for one segment of our population and not good for another. 

But if the world needs electric vehicles and solar cells to meet their emissions targets, does it matter where they’re made? Do countries have other places where they can get those goods as cheaply as they could from China?

Not right now, no. The amount of government support, and research and development that’s been poured into those industries in China has made them the world leader. So can everybody else make an electric vehicle? Sure, but not at that price competitive level. 

If there’s now this resistance to buying those types of goods from China and other goods, what does that mean for the Chinese economy? 

China is well aware that its past growth pattern has been very dependent on Western markets. In the future, there are lots of reasons why you can’t really, if you’re a Chinese policymaker, count on that. And we had a similar conversation about Japan, 30 or 40 years ago. So, China needs to address the relatively weak consumer demand in its own country. Focusing on producing for the domestic market is what they’ve said they’re going to try to do, and what they are doing. But in order to do that, you have to get Chinese consumers to spend. And that’s a challenge because of their traditionally very high savings rate.

And could that also lead to challenges with employment? 

Absolutely. To the extent that production is not soaked up in the domestic market, then you’re going to have employment challenges. But, remember, there’s some very weird things going on with the demographics in China because of the one child policy that was in effect for so long. So, you’re about to have severe labor shortages.

You write about the race to the bottom, production shifting to countries with lower costs. Could that phenomenon now threaten China’s economic model? 

Well, the race to the bottom, which I also call the race to the top, is certainly ongoing. That is why the production of things like shoes and T-shirts has moved to Bangladesh and Vietnam. Companies with profit motives are always going to be trying to find the least expensive source. 

If it is Chinese firms that have the know-how, the talent, the research and development to produce a certain widget, then there are forces that are going to try to enable that. 

What is also happening is that even as the world population is now projected to shrink, automation is entering into production processes at a much faster rate than anybody would have predicted. So if you don’t need human beings to make a pair of socks, then there’s no reason for that production to flow to where a lot of workers are. 

The race to the bottom has traditionally been about chasing lower labor costs. That’s typically what we have meant. But as labor becomes a less and less important input into so many different production processes, that race is going to decelerate. If labor is 10 percent of my costs instead of 70 percent, then I’m not going to race so quickly to where labor costs are low.

I’m curious how you think about Chinese firms setting up shop in duty-free countries such as Mexico. Does it matter more which country a U.S. company is importing from or the nationality of the firm that they’re buying from?

Both are relevant. It’s another example of how profit-seeking businesses try to circumvent barriers. If it is Chinese firms that have the know-how, the talent, the research and development to produce a certain widget, then there are forces that are going to try to enable that. We’ve seen that also throughout economic history as limits were put on Chinese exports of textiles and apparel, the Chinese companies just said, OK, we will go put a factory somewhere else. 

In July 2023, CFMoto, a Hangzhou firm that makes all-terrain vehicles, opened its first factory in Monterrey, Mexico. Credit: CFMoto

From a supply chain security perspective, does it matter if you are buying from a Chinese firm somewhere else? Does that make the supply chain as secure as if you were buying from another firm in that same country?

A lot of supply chain risks relate to logistics. In that case, you have to look at the logistics of the trading system. You have to look at how well the ports operate, how well the railroads operate, how well the roads operate, how well the customs machine operates. All of those things really are a big determinant of what we call supply chain risk. 

It seems in general like national security has become a much larger part of the trade debate since the book first came out. How does that affect the development of supply chains?

Things are much different today. In the year 2000, the U.S. made the decision essentially to allow China into the World Trade Organization and grant them what we called PNTR, permanent normal trade relations. And that triggered the huge growth in trade between the two countries, this big bang liberalization. If you go back and look at the arguments that were put in place in favor of PNTR at the time, it’s clear that those arguments, looking back, were wrong. 

There was a big bet made by President [Bill] Clinton, also [former Federal Reserve Chair] Alan Greenspan, that said that an economically liberalizing China will be a politically liberalizing China. And the more closely the countries are entwined in trade relationships, the less of a national security threat we would face. The prediction was that China’s politics would gradually liberalize, and would come to look a little bit more like the U.S., in terms of human rights issues, in terms of freedom of speech issues, in terms of democratic processes. 

It’s important to say today that that was way wrong. In fact, the economic empowerment of China, as we’ve seen these last few years, has enabled a cracking down, or a deliberalization of policy. 

If we’re being realistic, the big push for PNTR came from American corporations that wanted to be able to invest in China to reach its growing consumer base, and which wanted to be able to source from China. So there was a huge profit motive behind the push for PNTR. I don’t think there was a politically important group that was motivated by the idea that China’s politics are going to change. Instead, that was a response to people who were concerned about other aspects of this, whether it be job losses or what have you.

Is there anything you learned writing your book that you think policymakers should consider now as their attitudes toward China shift? 

One important thing that we don’t deal with very well in the field of economics, is power imbalances. What happened with what we call the China shock, was that a lot of members of the labor force who were at lower levels of skill and education really got knocked down, in part because they didn’t have the political power to respond in an effective way to what was going on. 

Special interests are always at work in Washington, and the reality is that these special interests have to be at least listened to. But there are other segments of the U.S. population that don’t have a mechanism for making their interests heard in a reasonable way. What you get as the result is the kind of backlash that we’ve seen against trade liberalization. 

You end the most recent edition of the book on an optimistic note about how tomorrow’s t-shirt will have a better story for the environment, for the labor that went into making it. Are you still optimistic about the power of trade?

I am. There’s been some very interesting research coming out over the past ten years or so that looks at the environmental impacts of trade, and essentially, trade allows the best environmental technologies to spread. 

I am concerned, like everybody else, about the level of tension in the U.S.-China relationship. That’s certainly a much bigger threat than it was when I was writing this book. But overall, in terms of the power of trade to improve people’s lives, if it’s appropriately regulated, I would still stand behind that.

---