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This Week in Trade: Cotton Prices Spike, Exports to China Fall, Commerce Secretary Says Trade at a Tipping Point

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This week, as with many of late, trade was a hot topic.

Cotton prices shot up, falling U.S. exports to China may have served to stir speculation about unfair trade practices, and trade talk centered around finalizing deals like the Trans-Pacific Partnership (TPP).

In speaking at the International Trade Association awards this week, U.S. Secretary of Commerce Penny Pritzker said now is the time for the U.S. to secure its influence on global markets.

“The world is more connected than ever. Supply chains are more integrated than ever. Customers are more accessible than ever. Yet people are more afraid of trade, more anxious about the future, and more frustrated with government than ever,” Pritzker said.

One of those frustrations is that the country may not be tamping down on unfair trade practices as it should.

Exports to China

The U.S. trade deficit grew $3.8 billion to $41.1 billion in May, according to data released by the Census Bureau last week. Year-to-date, the deficit is up 3.5% over last year to $7.2 billion, with exports down 4.9% and imports 4.7% lower than last year.

The deficit with China increased $1.7 billion to $28.3 billion in May, and year-to-date, U.S. goods bound for China fell 8.2% to $42.4 billion.

Though China’s economy is slowing, its annual growth remains upwards of 6 percent, partially driven by the $174 billion worth of goods the U.S. imported from China so far this year, which, according to The Wall Street Journal, is four times the size of America’s exports to China over the same period.

“The slowdown in U.S. exports could exacerbate accusations in the 2016 presidential campaign that China is engaged in unfair trade practices,” according to the Journal.

Slamming China’s unfair trade practices has been a staple for presumptive Republican nominee Donald Trump, who said—if elected—he would bring trade cases against China in the U.S. and with the World Trade Organization (WTO).

China has been accused of unfairly subsidizing its business to undercut U.S. business.

“China’s unfair subsidy behavior is prohibited by the terms of its entrance to the WTO and I intend to enforce those rules,” Trump said at a speech in Pennsylvania last month.

Cotton prices

Turning to cotton, the United States Department of Agriculture (USDA) released a report Tuesday forecasting cotton prices up $0.02 to $0.59 per pound for the coming season, and cotton has been surging since.

Between last Friday and Wednesday, cotton futures for December delivery jumped 15 percent—the highest since 2012, according to Reuters—closing at 73.15 cents a pound. On Thursday, the price rose another 1 percent to end at 73.87 cents for December delivery compared to 73.54 cents a pound for the March contract.

The phenomenon, according to Nasdaq, is called “backwardation,” which indiciates near-term demand for the fiber as later months will be more expensive since merchants add on costs for carrying the cotton.

Market speculators moves into the market on the news and mills started trying to lock in prices for December delivery.

“These guys are going to pushing cotton out the door earlier,” Louis Rose, founder of commodities consulting firm Risk Analytics told Nasdaq. “We’re upside down. There’s no reason to be carrying it.”

Trade’s latest

With TPP still looming and presidential nominees not putting forth much confident as to what will happen with the trade deal if it’s still not finalized before the country changes hands, America’s trade future seems in limbo.

“The anxiety over opening America’s shores to more trade stems from a simple fact: While our economy continues to grow, the gains are not felt evenly or immediately. While our economy continues to add jobs, inequality is expanding, and wages are not growing fast enough. Many are quick to blame this on trade,” Pritzker said. “But as all of you in this room know, underlying some of this pain are three technology-driven forces that are charging ahead whether we accept them, whether we like them, or whether we fight them: globalization, automation, and digitization.”

Among the biggest concerns about increasing ease of trade with more countries is that American jobs will drop off, but as Pritzker stressed, most of those jobs aren’t being solely lost to trade deals, but technology.

“We cannot deny that globalization is creating new competition for our companies and our people,” she said. “That automation is changing the very nature of work. That digitization is altering how we all use and manage information. We must acknowledge that technology is creating not only opportunities but challenges for our citizens.”

But blocking or pulling out of a trade agreement (as Trump said he would do with TPP, maybe even NAFTA, if president), Pritzker said, will ultimately undermine U.S. competitiveness.

“If we are genuinely going to shift people’s attitudes about trade, we must scale nationally the type of job-driven, community investment that is starting to work locally. But that demands political will. If we are truly pro-trade, we must support investments in 21st century infrastructure here at home to remain globally competitive,” Pritzker said.

She added, “If we are truly pro-trade, we must support the adoption of a modern immigration system to ensure that the best and brightest from around the world are welcome in our country. If we are truly pro-trade, we must update our tax code to incentivize businesses to invest in our labor force and to re-invest here in the United States, creating more and better-paying jobs. And, of course, we need to pass TPP.”

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