Effects of China's Cotton Tariff on the World Cotton Trade

Wednesday, January 9, 2019: 4:20 PM
Mardi Gras Ballroom Salon D (New Orleans Marriott)
Darren Hudson , Texas Tech University
Bing Liu , Texas Tech University
In response to the Trump administration proposed and implemented a 25 percent tariff on products imported from China, the Chinese government imposed a 25 percent retaliatory tariff on multiple U.S. goods, including cotton, starting on July 6th. The trade policy change has created concerns about potential impacts on the U.S. cotton industry and the global cotton trade, as China has traditionally been a large consumer of U.S. cotton. The purpose of this analysis was to estimate the impacts of the Chinese cotton tariffs on the U.S. cotton exports and the world cotton market. A partial equilibrium model representing the world cotton markets was used to provide estimates of the impacts of Chinese cotton tariff on the U.S. and world cotton markets over the next 10 years. Two scenarios were assumed. First, the model was run under the current situation (or baseline). Then, a second scenario assumes that a 25 percent tariff was placed on U.S. cotton imports with all other conditions remaining the same as in the baseline. Our simulation results indicated that the proposed cotton tariff led to a decline in U.S. cotton exports, lower by an average rate of 0.2% than the projected baseline. In particular, China decreased cotton imports from the U.S. at an annual average of 4.8% below the baseline through 2028/29, while increased cotton imports from the rest of the world by 0.1% per year. As a result, the U.S. cotton farm price and A-index were projected to be lower by 0.5 and 0.7 per year, respectively, through 2028/29.