On January 14, U.S. Customs and Border Protection said the U.S. would ban all cotton and tomato products from China's Xinjiang region, which applies to cotton yarn, clothing and textiles made from cotton grown in Xinjiang. The prohibition, known as the "moratorium", also applies to products processed or manufactured in third countries. After the ban was announced, domestic cotton prices were suppressed, and the main contract of Zheng cotton 2105 fell 2.51% on the same day, and the closing price fell below the integer mark of 15,000 yuan/ton.
Xinjiang cotton accounts for a large proportion, and textile raw materials are difficult to avoid
It is understood that this is not the first time that the United States has issued a ban on Chinese cotton. On December 2, 2020, the U.S. Department of Homeland Security's Customs and Border Protection (CBP) announced a withholding order for cotton and cotton products produced by the Xinjiang Production and Construction Corps and its subordinate entities, prohibiting the entry of such products into the United States, citing "forced labor" in the Corps. Compared with the previous ban, this ban has been expanded from XPCC cotton to Xinjiang cotton, and the scope of the crackdown has been expanded. According to the survey data of China Cotton Information Network, the total cotton output of Xinjiang in 2020/2021 was 5.35 million tons, an increase of 180,000 tons or 3.5% year-on-year, and the total national output was 5.892 million tons, an increase of 2.6% year-on-year. Xinjiang cotton accounted for 90.80% of China's cotton output in that year, and the proportion has shown an upward trend in recent years. For the vast majority of domestic cotton spinning enterprises, Xinjiang cotton is an indispensable raw material, with only a very small number of enterprises being exceptions: first, small textile mills in the inland that mainly use local cotton as raw materials; The second is the pure use of printed cotton, American cotton, Australian cotton, etc. as raw materials, or the pure use of imported yarn enterprises. In a way, the ban is almost equivalent to the U.S. rejection of Chinese cotton textile products.
With the double limitation of technical strength, it is almost impossible to implement the ban
It may seem like an extremely significant downside, but when you look closely, the likelihood of this ban being implemented is very small. The first is the technical hurdle. After inquiry and investigation, the source country of cotton is relatively judgmentable, and there are certain differences in the length, impurities, consistency and other indicators of cotton in various countries, but it is extremely difficult to judge the source of some of the fibers after being made into cotton textile products, such as ready-to-wear garments. After asking some institutions, it is not possible to do it for the time being, and even if such technology is available, it is expected that the cost will be extremely high. Regardless of whether the United States has such technical conditions and whether the technology is universal in customs, it is inconceivable to consider that the customs of various countries are strictly checking whether imported goods carry the new crown virus in the context of the current epidemic. Instead of prioritizing the chaotic epidemic and political turmoil in its country, and instead of using funds to help people and businesses in urgent need of support, the United States has spent a lot of money focusing on testing whether imported cotton products contain Xinjiang cotton, which sounds like a dry humor. Moreover, the current imports from China have the advantages of high quality and low price, high safety, and low risk of default, so we feel that the United States does not have the confidence to completely reject Chinese cotton textile products.
On paper, what is the United States trying to do?
In the absence of practical significance, the U.S. prohibition statement may serve the following purposes:
First, further sanctions will be imposed on institutions and enterprises in Xinjiang to disrupt China's internal affairs. Previous measures include, but are not limited to, adding the Xinjiang Production and Construction Corps to the SDN list, banning the import of cotton, clothing and other products from six Chinese enterprises or institutions, etc.
Second, reduce the proportion of Chinese textiles and apparel in U.S. imports. This is not the first time in history: in the fifties and sixties, the proportion of Japanese cotton textiles in the US import market increased from 17.4% in 1951 to more than 60% in 1956, and cheap imports crushed the US textile industry, and the half-century-long Japan-US textile war began, which was finally alleviated by the Voluntary Export Restrictions (VER) and the Japan-US Cotton Products Agreement imposed by the Japanese government and the textile industry. In 2015, the United States imported a total of 8.146 billion US dollars of textiles and clothing, of which 3 billion US dollars were imported from China, accounting for 36.82% of the total import share of the United States. The U.S. Department of Commerce intends to control the proportion of imports from China, which in 2019 decreased to 33.41%. From January to November 2020, the United States imported a total of 82.285 billion US dollars in textiles and clothing, a year-on-year decrease of 20.32%. Among them, imports from China were 23.175 billion US dollars, down 32.35%; imports from Vietnam were 12.463 billion US dollars, down 6.64%; Imports from India were 6.194 billion US dollars, down 17.26%, and some orders from China were transferred to India and Vietnam. Such restrictions and transfers have continued in recent years, and the transfer may accelerate after the full implementation of the ban on Xinjiang cotton.
Third, use external conflicts to divert the focus of domestic contradictions and make it more difficult for Biden to take office. Turning domestic contradictions into international contradictions and reducing the pressure on domestic ruling parties has been a common practice in many countries throughout history. The Trump administration's sanctions on Xinjiang cotton at this time can also shift the follow-up pressure from the Chinese government to the new Biden administration after January 20, which can be called killing two birds with one stone. However, this could also be a bargaining chip for the Biden administration to ease relations between China and the United States.
So, how much is this ban on Xinjiang cotton likely to reduce cotton consumption? To provide a reference with a rough calculation: China's cotton consumption domestic demand and foreign trade accounted for 50% each, assuming that the proportion of foreign trade increased to 55% during the epidemic, the proportion of textiles and apparel exported to the United States accounted for 16.98% of China's exports during 2019, and further decreased during the epidemic. Suppose the U.S. expects China's share to fall from 30% to 20% (the average annual share has fallen by less than 1% in the past), i.e., a one-third reduction in imports. In the case of China's annual consumption of 8 million to 9 million tons, such an adjustment of cotton consumption reduction is about 220,000-247,500 tons, and it is unlikely to be completed within one year.
If China continues to buy cotton from the United States to promote the rise of ICE cotton prices, while domestic cotton stabilizes or even falls around 15,000 yuan/ton, the price difference between domestic and foreign cotton is expected to shrink to within 800 yuan/ton, thus opening the storage window. In addition, according to the announcement of the State Food and Material Reserves Administration, the storage target for this year is about 500,000 tons.
