International Market Structure and the Impacts of Market Distortions From Domestic Subsidies: The U.S. Cotton Case

We examine the role of Chinese import policy on world cotton markets and reexamine the impact of U.S. cotton policy on world cotton price. In the lead-up to the World Trade Organization (WTO) cotton case, a model of perfectly competitive markets was used to estimate the impacts of U.S. cotton policy on world market price. We argue that Chinese import policy results in an imperfectly competitive market structure in international cotton markets. After adjusting for the price-depressing effects of Chinese import policy, we find that the likely impact of U.S. cotton programs on world market prices is likely much less than first anticipated.