Impacts of the China-U.S. Trade War on the U.S. Cotton Sector

In March 2018, President Trump announced that he was using existing authorities to impose tariffs on steel and aluminum imports from multiple countries. That same month, he also signed a memorandum to impose tariffs on Chinese goods of $50 billion, which was based on Section 301 of the Trade Act of 1974, which gives the U.S. broad authority to respond to unfair trade practices. These were the first in a series of actions resulting in a major trade conflict with China that is still ongoing. Nationally, the impact of the U.S.-China trade war on the U.S. cotton sector has received considerably less attention than soybeans. However, U.S. cotton export sales accounted for $5.8 billion in 2017, with China being a major destination. Additionally, cotton is one of China’s most important agricultural imports from the U.S. The Chinese government imposed 25% tariffs on U.S. cotton, as well as many other agricultural products. For cotton, the final tariff is as high as 65% for out-of-quota imports when added to the existing tariff (40%), which has put the U.S. at a disadvantage relative to other exporting countries. The U.S., Brazil, India, and Australia account for 69% of global exports. From the perspective of importers, the top countries, Bangladesh, China, Vietnam, and Indonesia, in 2018 accounted for around 60% of all imports. This analysis, examines the implications of the U.S.-China trade war on the U.S. cotton sector. Additionally, we examine developments in global cotton markets over the last decade, such as the increase in global yarn trade and China’s demand for primary processing by foreign countries. It appears that global trends over the last decade might have lessened the impact of China’s retaliatory tariffs on the U.S. cotton sector. However, recent data suggest that the U.S. cotton sector has still been disadvantage.