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China trade sanctions threat to U.S. cotton

Cotton growers in the Southeast have survived floods, droughts, chronic low prices, increasing production costs and are coping with herbicide resistance, but whether they can survive the new leadership in the U.S. House and Senate remains to be seen.

It’s no secret to cotton growers in the Southeast that a majority of their crop goes to China, and in return a high percentage of the crop comes back in low cost, Chinese textile products.

While the outgoing U.S. Congress has been supportive of fewer trade restrictions and have passed trade guidelines making trade with China lucrative for both countries, the makeup of the new Congress may not be so supportive.

Nancy Pelosi, the new Speaker of the House, once got into a tussle with Chinese guards in Beijing when she tried to post free trade banners in Tiananmen Square. Congresswoman Pelosi has called the U.S. China Policy “a disgrace”. She has been active for nearly 20 years in efforts to curb Chinese human rights violations and has advocated tying human rights policy to U.S.-China trade.

A recent university study found that 16 House seats and five Senate seats switched from pro-trade to trade cynics. The study conducted by a Swiss university contends the environment is no longer conducive in the U.S. Congress to pass more free trade legislation.

Though the DOHA round of WTO trade talks ended in July, many groups continue to meet informally in efforts to get some type formal negotiation back on track. One of the leading proponents has been the Agriculture Committee, which has continued the so called ‘quiet diplomacy’ since DOHA talks ended in July.

Sallie James, an economist at the CATO Institute for Foreign Trade, explains that trade negotiations are vitally important to U.S. farmers. “The WTO decision on U.S. cotton subsidies has proven U.S. subsidies are vulnerable to litigation. U.S. farmers and their legislative supporters can either reform farm support programs via negotiations or expect enforced reforms via WTO disputes,” she says.

Desmond Lachman, an economist for the American Enterprise Institute, contends the current U.S. trade policy for China isn’t working. He says China has over the past decade or so deliberately undervalued its currency and has built up a $250 billion surplus in trade worldwide. The biggest contributor to that surplus ($166 billion) is the United States.

Though exactly what Congresswoman Pelosi’s get tough policy on China will be is still in question, James says it could include some form of punitive tariffs. Such tariffs could provide a quick boost in revenue for U.S. cotton growers, but in the long-term could kill the proverbial golden goose.

In response to the economist’s contention that the Chinese were under-valuing the Yuan by 15-40 percent, senators from New York and South Carolina sponsored a bill to place a 27.5 percent tariff on all goods coming into the U.S. from China.

The bill never came to a vote in the Senate as cooler heads prevailed in Congress. The new Democratic leadership in Congress has rekindled the 27.5 percent tariff, which is an average of the economist’s prediction that China has deliberately undervalued its currency from 15-40 percent.

Should the U.S. Congress decide to place such a tariff on Chinese goods coming into the U.S., it would certainly fit into the “big stick” policy that at one time ruled U.S. trade policy. “The problem is you have this big stick, but placing a tariff on China would be like hitting yourself with the stick,” James contends.

Such a tariff may also be in violation of the WTO findings. If such a tariff was placed on China, the Chinese could appeal to the WTO. They could also tax U.S. goods, including cotton, though that would certainly not be in their best economic interest. A more likely response would be to look elsewhere for cotton.


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