There is an old tradition during a drought to tempt some rain by doing something like washing your car. I am continuing this tradition with this article. I hope that the U.S.-China tariffs on ag commodities will be resolved by the end of March. I am, therefore, hoping this article is quickly out of date.
As of July 6, China has had a 25 percent tariff on U.S. cotton imports. Currently, the U.S. has delayed implementation of an additional 15 percent tariff on Chinese imports, including Chinese apparel imports. These actual and threatened tariffs have likely contributed to a decline in U.S. export sales, if for no other reason than because of the uncertain business climate.
As of early March, there have been several signals from the Trump administration that progress is being made towards a resolution of the U.S.-China commodity tariffs. Let us hope that this is the case. The long-term implications of these tariffs do not bode well for U.S. cotton exports.
If the tariffs on U.S. cotton imports persist, this may continue the wet blanket effect on U.S. cotton exports. It could continue to cause a short-term reduction in U.S. share of the Chinese market. It could encourage non-Chinese buyers to exploit the uncertain position of U.S. cotton shippers with harder terms. It could encourage more Chinese contacts with Brazilian suppliers. The worst case scenario is that it will encourage an expansion of Brazilian production.
If the U.S. imposes additional tariffs on Chinese apparel imports, the predictable results are all bad. If retailers pass on the additional cost to consumers, basic economics suggest reduced purchases of apparel. This, in turn, could reduce China’s overall demand for fiber. On the other hand, if retailers pass the apparel tariff costs up the supply chain to apparel, cloth, and yarn manufacturers, the predictable effect is a weaker basis from U.S. merchants to U.S. growers.
In the long run, a continuation of these and other tariffs may slow economic growth in general. Per capita cotton consumption rises and falls with the general economy, so the sooner the economic drag of the tariffs are removed, the better.
For additional thoughts on these and other cotton marketing topics, please visit my weekly on-line newsletter at http://agrilife.org/cottonmarketing/.