Brazil’s exports to Asian markets, primarily China, Vietnam, Pakistan, Turkey, Bangladesh and Indonesia, have continuously increased over the past two decades. Ridley and co-author Stephen Devadoss, Texas Tech University, address how Brazil’s growing presence in the world market has affected competitive dynamics.
The authors conducted a statistical analysis of cotton trade between any two countries in the world, looking at the impact of trade agreements, trade policies, tariffs, and other factors. They also modeled these trade flows in relation to Brazil's land area devoted to cotton, estimating how Brazil's expanding cotton production affects other countries through the global trade system.
Ridley and Devadoss also looked at the effects of the recent U.S.-China trade war. At the onset of the dispute in 2018, China imposed a 25% retaliatory tariff on U.S. cotton, causing U.S. exports to decline and opening the door for Brazil.
The researchers performed a counterfactual simulation analysis, where they built a statistical model of the global cotton market as it would have looked without the trade war and the Chinese tariffs. Simulating this scenario allowed them to isolate these elements from other factors affecting trade.
Based on this simulation model, Ridley and Devadoss estimate that U.S. cotton exports to China went down by about $500 million annually. These exports were instead diverted to other markets, primarily Vietnam, Pakistan, and Bangladesh.
The authors estimate that Brazil's exports to China went up by about $75 million. While U.S. exports to China have somewhat recovered since 2020, when the U.S.-China Phase One trade deal was implemented, Brazil’s share of the market remains high.
“Brazil didn't really have much of a foothold in the Chinese market prior to the trade war. Now they seem to be there to stay, so that’s one of the consequences of the dispute,’” Ridley notes.
“It's long been recognized there's growing competition between the U.S. and Brazil in agricultural markets, particularly soybeans and corn. Brazil is really well suited to the production of a lot of these commodities. They are rapidly developing their infrastructure and capacity to export and sell products to the rest of the world. Our results address this growing competition in agricultural commodities and illustrate how factors like the trade war have accelerated this development,” Ridley concludes.
The paper, "Competition and trade policy in the world cotton market: Implications for US cotton exports," is published in the American Journal of Agricultural Economics.
This work was supported by the USDA National Institute for Food and Agriculture, Agricultural and Food Research Initiative Competitive Program, Agriculture Economics and Rural Communities.
Source : illinois.edu