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Tariff War With China Hits California Cotton Market

In the latest salvo in the tariff war between the United States and China, the U.S. cotton industry is expected to receive a direct hit as China piles on an additional 25 percent tariff on U.S. uncombed-cotton imports.
The tariff, which goes into effect July 6, is already being felt in California—where farmers in the Central Valley region of the state cultivate highly prized long-staple American Pima cotton that is soft to the touch and durable. Most of the crop is exported to China and India.
“This is an issue that is going to affect the U.S. cotton industry rather significantly as China has traditionally been a larger buyer of U.S. cotton and a massive supplier of products back to the U.S. market,” explained Marc Lewkowitz, the president and chief executive of Supima, a nonprofit promotional organization in Arizona representing American Pima-cotton growers. It is also the owner of the Supima trademark for American Pima.
He noted that about 95 percent of the American Pima crop is exported every year, and typically China imports about 40 percent of that crop. For the crop year that runs through July 31, China has purchased 239,200 bales, or approximately 120 million pounds of the fiber, valued at around $200 million, Lewkowitz explained.
Already, some 205,000 bales have been shipped, leaving a balance of about 34,000 bales for this year in addition to some 34,000 bales of forward contracted cotton sales for the next crop year. “These existing sales along with the entire new crop are at risk relative to the proposed Chinese tariffs,” he said.
Roger Isom, president and chief executive of the California Cotton Ginners & Growers Association in Fresno, Calif., said his organization is hearing stories of China canceling contracts to purchase California cotton. And news reports are recounting how farmers in India are getting more inquiries about their cotton crops.
Cannon Michael, president and chief executive of Bowles Farming Company, which grows Supima and other cotton on land near Los Baños, Calif., said some speculators have pulled out of the market, which has put a damper on cotton prices.
His farm exports about 60 percent of its cotton crop to China and another 40 percent to India. “Any trade disruption is potentially negative,” he said, “especially for states like California that export a lot of agricultural products.”
The National Cotton Council of America in Cordova, Tenn., said it was laying low on the issue right now. But in April, when China first announced the cotton tariffs, NCC Chairman Ron Craft said he could not overstate the importance of China’s market to U.S. cotton farmers.
China is one of the principal buyers of U.S. cotton as is Vietnam. The United States is the second largest exporter of cotton, having shipped around 15 million bales of cotton overseas last year.
The tariff on uncombed cotton is part of a trade war the Trump administration launched earlier this year. The administration started out by slapping a 20 percent to 50 percent tariff on all solar panels and washing machines imported into the United States.
Then it piled on more tariffs on aluminum and steel, which prompted the European Union to place a 25 percent tariff on key imports coming from the United States. Those include men’s and women’s blue jeans, T-shirts, shorts, men’s synthetic woven industrial and occupational trousers, cotton woven bed linen that is not printed, and footwear with upper and outer soles of leather not covering the ankle. These items carry an estimated value of $88 million.
Then the trade war expanded in April when the Trump administration announced a long list of Chinese products that would be subject to a 25 percent tariff.
The proposed new tariffs amount to $12.5 billion on about $50 billion in goods. They affect hundreds of China-made products such as semiconductors, car and aircraft parts, and machine tools.
After that broadside, China threatened to place a 25 percent tariff on uncombed cotton and other U.S. items including soybeans; corn; pork; certain fruits including apples, sorghum and dried cranberries; whiskey; and some passenger cars.
And now the Trump administration is threatening to amp up the tariffs on as much as $200 billion or more on Chinese goods brought into the United States.
The National Retail Federation in Washington, D.C., recently conducted a study showing that the initial tariffs on $50 billion of Chinese imports would reduce the U.S. gross domestic product by nearly $3 billion and lead to the loss of 134,000 American jobs.
“Higher prices for everyday essentials and lost jobs threaten to sap the energy out of the strong U.S. economy,” said Matt Shay, the president and chief executive of the National Retail Federation. “This reckless escalation is the latest reminder that Congress must step in and exert its authority on trade policy.”