The ABCs of the cotton trade dispute

While many developing countries point to U.S. cotton export subsidies as the sole culprit behind the current world trade dispute, an Alabama Cooperative Extension System economist says the issue is far more complicated than that.

A myriad of issues is driving the dispute over U.S. cotton subsidies, though much of it can be attributed to the fact that so much cotton is no longer spun where it's grown, says Bob Goodman, an Alabama Cooperative Extension System agricultural economist and Auburn University associate professor of agricultural economics.

“American growers used to spin 12 million bales of cotton and export only about 5 million,” he says. “There was a lot of trade in textiles but very little in terms of raw cotton.”

As long as U.S. cotton remained mostly on U.S. shores, the long-standing American practice of subsidizing cotton exports was largely a moot point. Things began to change, though, as more developing countries carved out a bigger share of the world textile market, largely at the expense of the United States.

“As it turns out, because of all this spinning going on now in the Pacific Rim and other parts of Asia — China, in particular — these countries are having to import a lot more cotton than they produce,” Goodman says.

As a result, more and more U.S. cotton that once would have been used in American cotton mills is being exported overseas where it's needed most. But problems have arisen. Developing countries that produce cotton but don't subsidize exports took note of all the American cotton being shipped to the far corners of the world and screamed “foul.”

They're demanding a bigger chunk of the export pie.

In what has turned out to be a landmark trade case, Brazil sued the United States through the World Trade Organization, claiming that U.S.-subsidized cotton distorted free trade by artificially lowering prices and preventing other cotton-producing countries from acquiring a larger share of the world export market.

Eliminating U.S. cotton subsidies is more easily said than done. One of the biggest stumbling blocks to a resolution of the issue involves the wide disparity in the cost structure of the United States versus developing countries, Goodman says. It just costs a lot more to produce cotton here than in developing countries, he says.

Besides, defenders of U.S. subsidies contend there is plenty of blame to go around. United States cotton producers aren't the sole or even the principal culprit, they argue. They point to the many deft methods developing countries have employed to keep cotton and other U.S.-grown products out of their ports.

“In essence, they amount to de facto tariffs,” Goodman says.

Indeed, American trade negotiators have stated they will consider eliminating export subsidies only when other countries agree to set a time table for eliminating these types of barriers.

Barring a resolution of these trade negotiations, one solution, Goodman says, would be a return to a system that existed in this country only a few decades ago: a vibrant textile manufacturing sector that uses the bulk of domestically grown cotton.

“If foreign countries don't want us to export, then I say let's use it to revitalize our own textile industry,” he says. “Grow it here, spin it here, weave it here, sew it here and wear it here. Then we wouldn't have to worry about all this.”

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