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Talking Trade Policy: Impact on U.S. Cotton Growers

Of all the factors that can affect growers’ income, perhaps none is more important than international trade policy and the impact it has on U.S. exports. Approximately 95 percent of U.S. cotton moves into international channels either as raw fiber or as cotton yarn and fabric manufactured by U.S. textile mills, and during the last five years the value of U.S. cotton exports has averaged approximately $4.9 billion per year. In particular, cotton produced in Texas, Oklahoma and Kansas is almost entirely exported in raw form.

“Because of the volume and variety of cotton grown in the Southwest region of the U.S., mills from all over the world look to source bales from our area,” said Kevin Brinkley, PCCA President and CEO. “That means the success of U.S. trade directly impacts every grower in the region. That’s why the issue receives a high level of focus from producer and marketing organizations.”

National Cotton Council President and CEO, Gary Adams, said trade agreements establish the rules that govern international commerce, and it is important to establish agreements that provide a balanced trading environment and do not create unnecessary barriers. He also said trade policy can directly impact U.S. cotton growers by affecting prices as well as demand for cotton.

“Trade policy has a direct impact on the bottom line of U.S. cotton growers because trade policies affect the demand for U.S. cotton, and thus affect prices that growers receive for their product,” Adams said. “The impacts can manifest themselves in several ways. For example, there can be trade barriers erected that limit access to international markets. Trade policies that offer preferential access to competitors such as West African or Central Asian countries also harm U.S. cotton growers.

Also, trade policies for cotton textile products can have significant impacts on the U.S. textile industry – which is the U.S. cotton grower’s most reliable and steady demand base.”

Adams said it is important for cotton growers to stay informed about the trade policy landscape and work closely with merchandisers to make marketing decisions.

“Ideally, trade policy would not affect the near- term decision that growers must make regarding their marketing,” Adams said. “Growers should be free to make marketing decisions in response to the market itself rather than to trade distorting actions by foreign governments. In other words, trade policies should be well-established and understood. Trade policies are designed to add certainty, rather than create uncertainty. Unfortunately, that is not always the case, and we have seen trade policies that have a definite impact on markets and marketing decisions.”

Cotton and cotton textiles are included in all of the major multilateral and bilateral trade agreements of which the U.S. is a signatory country, Adams said. These include the Uruguay Round Agreement that established the WTO, the North American Free Trade Agreement and the CAFTA-DR FTA.

“Fortunately, the recent renegotiations of NAFTA and the U.S.-Korea Free Trade Agreement did not have any detrimental impacts on cotton growers,” Adams said. “The duty-free, quota-free access under those agreements was continued in the renegotiated agreement. Now, it is important for Congress to ratify the new USMCA.”

USMCA, overall, is preserving the current benefits of NAFTA as it encourages continued regional integration of the cotton and textile supply chain, Adams said.

“Perhaps the most important feature of USMCA is the preservation of NAFTA’s market access benefits for U.S. cotton and cotton products,” Adams said. “Importantly, USMCA establishes a new, separate textile chapter, reflecting the scale and significance of regional textile and apparel trade, and incorporates NAFTA’s yarn-forward rule of origin. The textile chapter would also strengthen customs enforcement, which is particularly important to the sector.”

Adams said over the last year the trade negotiations between the U.S. and China have negatively affected cotton prices.

“U.S. cotton growers continue to feel the direct impacts of the ongoing trade tensions between the United States and China. In the summer of 2018, prior to the imposition of tariffs, cotton futures were trading in the low 90’s,” Adams said. “In the months since tariffs have been applied, futures have fallen into the low to mid-70s.” The imposition of tariffs has also impacted China’s imports of U.S. cotton.

“Prior to the imposition of tariffs, China was expected to import between 3.0 and 3.5 million bales of cotton,” Adams said. “However, with tariffs in place, the U.S. had shipped only 700,000 bales of cotton from August through early March.”

Not only does the export market help support U.S. farmers, but all of the U.S. cotton industry as well.

“While good trade policy is essential, it’s critical that we combine it with effective export promotion like the programs carried out by Cotton Council International. If we can eliminate or at least minimize trade friction while simultaneously educating international mills about the high quality of U.S. fiber, that’s a winning combination for our growers,” added Brinkley.

As trade negotiations continue, the topic will remain at the front of everyone’s minds. Adams said the National Cotton Council will continue to advocate on behalf of U.S. cotton producers.