Cotton Exports: US Bans China’s Cotton Products – How India Can Take Advantage

Earlier this month, the Trump administration redoubled the trade war between the United States and China by banning cotton imports from the expanding Chinese quasi-military organization, the 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 China’s cotton production, accounting for about 17 percent of Xinjiang’s economy. In 2019 alone, the United States imported up to $ 11 billion worth of cotton textile and apparel products from China.

Regardless of whether the move was taken to intensify America’s hard-line stance on China, making it increasingly difficult for the incoming Biden administration to soften relations with the Middle Kingdom, it undoubtedly has radical consequences for apparel firms and other importing companies. cotton products.

Many of these companies depend on the cotton lint produced by XPCC at various stages of their supply chains. Additionally, the interwoven nature of the global cotton supply chain will also make it difficult to identify whether cotton textile imports have used XPCC fiber. Industry experts have noted that only the largest companies with integrated operations throughout the textile supply chain can guarantee that XPCC products have not been used.

However, the move prompted credit rating agency ICRA to suggest that it could work in India’s favor. In its report, the agency noted that several of India’s top clothing exporters have already started taking more orders, or are engaging in discussions with international buyers, with the intention of filling 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 and many are already working to shift to a ‘China + 1’ model. The US ban on XPCC products is likely only to accelerate this transition.

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

The key to improving the forecast has been increased demand for production of surgical gowns and masks, along with lower supply prices nationwide. The latter has allowed India to compete more aggressively in the international market.

While the Indian rupee fell to a two-month low in early November, world cotton prices nearly approached their highest level in 17 months, thus increasing margins for traders. As of early November, Indian cotton was trading at about 74 cents a pound (cost and freight) to importers in China, Bangladesh and Vietnam. Meanwhile, cotton from Brazil and the United States was trading at 77 cents a pound.

Industry experts have also pointed out that India is expected to run a large surplus to increase exports in the current fiscal year. This comes in the context of the downward revision of the US cotton production figure from 17.06 million bales in September to 17.05 million in October, a reported result of increased drought in its major cotton producing regions and crop damage caused by several hurricanes.