"Right from campaigning days, President Donald Trump had made it clear that he is not in favour of multinational trade agreements viz. NAFTA and the Trans-Pacific Partnership. Last month, he signed an executive order withdrawing the US from the negotiations of the TPP, a free-trade agreement between the US and 12 other Pacific Rim nations. The TPP could abolish foreign taxes in the form of tariffs on the vast majority of US exports of food and agricultural products. Agricultural tariff rates average 19 per cent in Japan and 16 per cent in Vietnam, though some products have peak tariffs of more than 300 per cent, according to the US trade representative."

Right from campaigning days, President Donald Trump had made it clear that he is not in favour of multinational trade agreements viz. NAFTA and the Trans-Pacific Partnership. Last month, he signed an executive order withdrawing the US from the negotiations of the TPP, a free-trade agreement between the US and 12 other Pacific Rim nations. The TPP could abolish foreign taxes in the form of tariffs on the vast majority of US exports of food and agricultural products. Agricultural tariff rates average 19 per cent in Japan and 16 per cent in Vietnam, though some products have peak tariffs of more than 300 per cent, according to the US trade representative.

There is also the 2010 ASEAN-China Free Trade Agreement, which pulls together 10 nations in Southeast Asia. Although the US is not a member, the pact indirectly benefits American cotton farmers and is the catalyst behind the plant's recent surge in price.

Vietnam & US strong ties continue

The US is the world’s largest cotton exporter, supplying approximately 40 per cent of Vietnam’s cotton imports in the last three years, and 50 per cent for the year to date, indicating its increasing share. According to the US Department of Agriculture, American growers are expected to ship the most cotton this season (ending July 31) since 2013. US exporters have already sold 38 per cent of expected shipments, topping the five-year average of 32 per cent to date.

The 2010 ASEAN-China Free Trade Agreement allowed duty-free access of cotton from Vietnam and other ASEAN nations into China. Raw cotton unfortunately didn’t make the cut, facing a 40 per cent above-quota tax. Thus, it made sense that many Chinese-owned mills relocated to Vietnam, import raw cotton and ship the yarn back to China. As a result, approx. 50 to 65 per cent of Vietnam’s cotton imports are spun in foreign-owned mills, with the bulk exported to China.

Earlier this year, China auctioned its mounting cotton reserves, forcing its price closer to global levels. The move revived China’s domestic spinning industry and encouraged more governmental support for yarn spinning in the West of the country. Thus, China became a viable competitor to Vietnam, and added to the already rising demand for US cotton.

China’s three major yarn suppliers are: India, Pakistan, and Vietnam. The latter's growth has been the most impressive, particularly in 2016. Meanwhile growth in Pakistan and India declined, having faced crop shortfalls and tighter stocks. Additionally, yarn exports from major non-ASEAN countries such as Uzbekistan and South Korea experienced declines. Even as yarn spinning shifted from India, Pakistan, Uzbekistan, and to some extent China, into duty-preferred importer countries such as Vietnam, the US has derived an indirect benefit from China’s duty-free ASEAN access.

US withdrawal from TPP…

The TPP would have offered a level playing field for American workers and businesses, resulting in more ‘Made-in-America’ exports and higher-paying jobs. By cutting more than 18,000 taxes various countries put on Made-in-America products, TPP would have allowed US farmers, ranchers, manufacturers and small businesses to compete in some of the fastest growing global markets. Trump’s refusal to negotiate the treaty should be worrisome not only for cotton farmers but for all exporters to Asia.