Cotton exports: the United States bans Chinese cotton products: how India can benefit

Representative image. | Photo credit: Twitter

Key highlights

  • The ban has radical consequences for apparel companies and other companies that import cotton products
  • According to estimates by the Indian Cotton Association, cotton exports are expected to increase to 65 lakh bales in the current fiscal year against June’s estimate of 40 lakh bales, which means a staggering 63% improvement.
  • While the Indian rupee fell to a two-month low in early November, global cotton prices nearly reached their 17-month high, thus boosting traders’ margins.

Earlier this month, the Trump administration doubled down on the trade war between the United States and China by banning cotton imports from China’s sprawling quasi-military organization, Xinjiang Production and Construction Corps (XPCC).

In a statement, the US Customs and Border Protection (CBP) cited the widespread use of forced labor in Xinjiang. The XPCC is reportedly responsible for about a third of all cotton production in China, which accounts for about 17% of the Xinjiang economy. In 2019 alone, the United States imported up to $ 11 billion worth of cotton textiles and apparel from China.

Regardless of whether the move was made to intensify the U.S.’s tough stance on China, making it increasingly difficult for the new Biden administration to soften relations with the Middle Kingdom, no doubt, it has huge consequences for apparel companies and other companies that import cotton products.

Many of these companies rely on the cotton fiber produced by XPCC at various stages of their supply chains. Furthermore, the intertwined nature of the global cotton supply chain will also make it difficult to identify whether imports of cotton fabrics have used XPCC fiber. Industry experts have noted that only the largest of companies with integrated operations along the entire textile supply chain can be able to guarantee that XPCC products have not been used.

However, the move prompted the ICRA credit rating agency to suggest it could work in India’s favor. In its report, the agency noted that several major Indian apparel exporters have already started receiving increasing orders, or are engaged in discussions with international buyers, intending to fill the gap caused by the ban.

The global disruptions caused by the COVID-19 pandemic have awakened companies to the importance of diversifying their supply chains, many of which are already working towards a “China + 1” model. The US ban on XPCC products is likely to accelerate this transition.

Even before the US ban, the prospects for India’s cotton exports were increasing. According to estimates by the Indian Cotton Association, cotton exports are expected to increase to 65 lakh bales in the current fiscal year against June’s estimate of 40 lakh bales, which means a staggering 63% improvement. The previous year, data from the Cotton Corporation of India showed that India exported 50 lakh bales of cotton.

The key to better forecasting was the higher demand for surgical gowns and mask production, along with lower input prices nationwide. The latter has enabled India to compete more aggressively on the international market.

While the Indian rupee fell to a two-month low in early November, global cotton prices nearly approached the 17-month high, thereby increasing traders’ margins. In early November, Indian cotton was trading at around 74 cents per pound (cost and freight) for importers in China, Bangladesh and Vietnam. Meanwhile, cotton from Brazil and the United States was trading at 77 cents per pound.

Industry pundits also noted that India should have a large surplus for rising exports under current taxation. This comes against the backdrop of the U.S.’s downward revision of the cotton production figure from 17.06 million bales in September to 17.05 million in October, a reported result of the increased drought in its major cotton-producing regions. and damage to crops caused by various hurricanes.

Source