Analysis Of Tariff Surcharge Has Little Impact On The Supply And Demand Margin Of Domestic Cotton

In 2022, the United States launched the ban on Xinjiang cotton, and promoted the organizations and enterprises that it can influence, such as BCI and its members. Therefore, China's textile exports to the United States after 2023 are basically the import traceability orders of American cotton and Brazilian cotton, as well as blended products. After the increase of tariffs, it is expected that the cotton textile products imported by the United States from China will be greatly reduced, but at the same time, the orders of American cotton imported by China and the Brazilian cotton raw materials needed will also be correspondingly reduced. In 2024, the corresponding cotton consumption of cotton textile products exported from China to the United States will be about 700-75 million tons, accounting for about 28% of China's cotton import volume of 2.6185 million tons in 2024, which is lower than the 875600 tons of American cotton imported from China in 2024. The supply and demand of imported cotton and export orders decreased, and the domestic supply and demand pattern changed little directly, but the inventory consumption ratio at the end of the year increased statistically. In addition, because the United States also increased tariffs on Vietnam, Cambodia, India and other countries, the cost of cotton textile products imported from these countries also increased, and the transfer effect of orders was partially reduced.

China's countervailing measures significantly benefit American cotton. In 2024, China's imports of American cotton will account for about 26% of American cotton exports. Unlike the United States, which has imposed tariffs on more than 60 countries, China has only proposed a comprehensive countervailing tariff on the United States. After the US cotton increased the tariff by 34%, the corresponding import demand could easily be transferred to Brazil, Australia and other countries. However, it is the planting period of American cotton at present. If cotton farmers significantly reduce the planting area of new season cotton in consideration of the reduction of Chinese demand, it will provide some support for American cotton.

This time, the United States has imposed tariffs on many countries, and with the counter-measures of various countries, the countries involved are preliminarily estimated to have exceeded 70% of the world's major economies. As a result, the global trading system has suffered a chain shock, involving more than 50% of the international trade volume, and it does not rule out the possibility of sustained expansion and deterioration in the later period. Due to frequent tariff and trade wars, the world's major economic organizations have lowered their economic growth expectations. On March 17, the Organization for Economic Cooperation and Development lowered the world economic growth forecast for 2025 from 3.3% to 3.1%. The world economic growth forecast for 2026 was lowered from 3.3% to 3%. After the tariff trade war further escalated in April, the growth rate may fall below 3%.

Looking back at the Sino US trade war in 2018-2019, the International Monetary Fund (IMF) also lowered the world economic growth rate by 0.2% for this reason, with the growth rate of the next year attached. At the same time, the global consumption of cotton decreased from 26.989 million tons in 2017/18 to 25.818 million tons in 2018/19 (reported in November 2021), down 4.3%. In the latest monthly supply and demand balance report of the US Department of Agriculture in March, the global cotton consumption in 2024/25 was 25.375 million tons, up 1.54% year on year. There was obviously great room for adjustment in the later period of the forecast. It is expected that after the outbreak of the tariff war, the international cotton consumption will decrease by 1 to 1.2 million tons or more, and the specific reduction still needs to be observed after the policy adjustment and the scope of the tariff war.

Although the tariff imposed by China and the United States has little impact on the direct supply and demand of domestic Zheng cotton, it has a great impact on the market capital mentality. In September 2024, the United States and many other countries started the interest rate reduction cycle, so the bulk commodities at the beginning of 2025 were mainly allocated as a bull in many funds. However, after the wave of tariff war in the United States, it is doubtful whether the goods can still be used as multiple allocation. It is also possible to directly switch from multiple allocation to empty allocation.

Similarly, as the risks of policies and operating environment are greatly increased, enterprises will operate more cautiously. Previously, when it was below 13500 yuan/ton, the hedging ratio of cotton textile related enterprises was controlled within the lower value allowed by the enterprise, such as 50%. However, when the policy risk comes, the proportion obviously needs to be further improved, which undoubtedly increases the downward pressure on cotton.

Conclusion: Cotton has a strong financial attribute. In the past decade, it has shown a high degree of consistency with the trend of the commodity market when encountering international trade disputes, inflation and economic recession. Therefore, it is often regarded as a macro risk hedge by funds. When the financial market as a whole is impacted by external factors, the influence of supply and demand on cotton prices weakens, and the macro becomes its dominant factor. If only the supply and demand are considered, the cotton price should be above 13000 yuan/ton, but if the macro perspective is considered, it is also possible for cotton to fall below 12000 yuan/ton. The tariff game initiated by the United States is likely to run through 2025, especially the game with China, which will be dominated by resistance and become a leading factor affecting prices, causing sharp fluctuations in prices.