National Cotton Council general counsel John Gilliland took the podium at the International Trade Policy committee meeting on February 11 to provide an update on the economic and geopolitical priorities, which all centered on China.
“The U.S. relationship with China is the central organizing principle of our work and the highest priority — where we sit the next couple of years will depend on them,” Gilliland added. One of the most notable developments in the U.S.-China relationship is the Uyghur Forced Labor Prevention Act. Signed into law on Dec. 23, 2021, by President Biden, the bill ensures that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China does not enter the U.S. market.
Cotton is considered a highrisk sector, meaning the probability of forced labor in the Xinjiang region is high for the commodity. Therefore, the only way to overcome the law as a company is to prove that the product has not been touched by forced labor in any part of the supply chain of that good. “This legislation provides the administration inner agency task force assigned to it a daunting task in applying this standard to all goods coming from that region,” Gilliland said.
Another component of the U.S.-China relationship is competition. The U.S. is implementing strategy to beat China in areas where they are trying to displace us, such as advanced technology.
“The best way to think about the Biden Administration’s economic policy course is to look at it as a return to something we haven’t seen since the early years of the Cold War, which is industrial policy,” Gilliland added.
Last year, Congress enacted the CHIPS and Science Act — a large bill written with a lot of assistance from the Biden Administration to incentivize investment in U.S. manufacturing and advancing technology, specifically in semiconductor chips. The Biden Administration also issued an executive order last year, prohibiting export of semiconductors to certain Chinese buyers. They’re now working with U.S. allies in Europe to encourage them to place export bans on semiconductors to Chinese buyers as well.
“Again, all of this is in an effort to outcompete China,” Gilliland said. “What we’re seeing right now is concerning because the U.S. and China — the two largest economies in the world —are pulling apart or rethinking this notion of globalized economy that is built around a common set of rules.”
To respond to the threat China poses to the U.S., the Administration is focusing on U.S. investment in China and constraining China’s ability to build its own industries: cut off its sources of inputs, cut off its sources of innovation, research and development through U.S. universities and universities with U.S. allies.
“However, outside these sectors, trade with China is actually quite robust,” Gilliland added. “It surprised me when I checked the numbers that we had record-setting exports to China last year. We also had rising imports with everything rebounding from the COVID-19 pandemic.”
Going forward we should expect a growing focus on China from the Biden Administration but also from Congress. “It might be on the one area where we see both parties agree,” Gilliland added.
What does this mean for agriculture?
It’s hard to say in cotton and textiles, but we’re situated differently than the rest of the ag market. For now, China remains an important export market for us, and we expect that to remain because China needs our commodities. However, China is also starting to do some things to diversify their own suppliers around the U.S., according to Gilliland.
The Chinese government is under tremendous stress. Their COVID-19 response drastically altered their economy — their economic growth is far below where they would like it to be. There’s been a lot of news coverage on how their population is now declining for the first time. They’re stressed, and if you’ve read the news lately, you know the U.S. shot down aerial objects said to belong to them. “And if you thought tensions were high when Nancy Pelosi visited Taiwan, just wait until Kevin McCarthy visits. China will not take this lightly. So, we feel these tensions, not only in our national security, but we will probably see them in our trade segments,” Gilliland said.
What about the World Trade Organization?
While the World Trade Organization (WTO) did meet this past June, they weren’t able to make much progress in agriculture.
Follow up discussions focusing specifically on cotton didn’t make any headway, either. Most of the work on that front was focused on fertilizer costs and trade facilitation between developing countries. The next meeting is not until 2024, so this year should be relatively quiet from WTO. The WTO’s main focus is institutional reform in settling disputes. The U.S. has been blocking the appointments of new jurists to the appellate body — the WTO’s “supreme court,” so-to-speak. Currently, disputes that are launched with the WTO get a lower court ruling from the dispute panel, but it’s not binding until it’s ruled on by the appellate body or accepted by the entire WTO membership by consensus. “And that really hasn’t been happening,” Gilliland said.
“Until the appellate body is reconstituted, we don’t expect disputes or challenges against U.S. agriculture to go anywhere.”