As cotton prices hover near five-year lows and tariff uncertainity abounds, Sourcing Journal spoke to Jon Devine, senior economist at Cotton Incorporated, to discuss the potential implications on cotton exports and overall demand.
“There’s the size of the pie and there’s a slice of the pie,” Devine said. “With tariffs—the size of the pie—a threat is that the pie is going to get smaller, right, so there’s going to be more uncertainty. There’s going to be more caution around order placement and around investment, which means the pie could get smaller. Beyond that, there are shifts in the slices within the pie, regardless of how big or small that pie might get.”
Related Stories
To that end, the U.S. and China are both seeing their slices shrink. This dynamic isn’t new, per Devine, but recent tariff announcements may accelerate it.
“This can be seen as doubling-down on policy changes already put into place,” Devine said. “Given the size of tariff increases, maybe doubling down isn’t the right term; it has been more like, exponentially stacking in the case of China.”
But, those successively higher tariffs may not change the situation indefinitely. This is due to something economists call the diminishing effect—the idea that each new policy shock moves the market less than the last. It raises the question whether the move from 104-point rate increase to 145 points has the same impact as earlier smaller 10-point rate increases.
In addition, the cotton market has already absorbed years of tariff fluctuations, including the initial wave in 2019 and increasing restrictions tied to cotton sourced from Xinjiang in recent years. As a result of the moves, there is less exposure for U.S. cotton apparel sourcing than there would have otherwise been (and that there is for man-made fiber dominant sourcing).
That’s especially relevant for U.S. buyers looking to move sourcing out of China. Cotton apparel already has a more diversified sourcing base, giving it a potential edge as supply chains shift.
Zooming in on apparel sourcing, cotton retains one advantage: tariff rates.
In the U.S., cotton-dominant apparel generally faces lower base tariffs than man-made fiber apparel. A cotton T-shirt, for example, carries a standard rate of 16.5 percent, while a synthetic version is taxed at 32 percent. That roughly 16-point gap still holds even after the new tariffs.
“These changes have all been additive,” Devine said. “They haven’t been rewriting the system; they’re building on what was already in place. Despite the series of recent changes, cotton apparel still has lower tariff rates relative to man-made-dominant apparel.”
While tariffs have dominated headlines, China’s cotton import demand may be having a bigger impact on fiber prices.
According to the latest U.S. Department of Agriculture (USDA) numbers, China is expected to import 9 million fewer bales of cotton this crop year than last—a drop equal to more than half of this year’s U.S. crop. Last year’s spike in Chinese imports, many suspect, was a government-led stockpiling effort ahead of anticipated trade tensions.
This year, that demand has vanished.
On the supply side, it’s a perfect storm: the U.S. crop is up by several million bales, Brazil’s harvesting another record crop, and Australia and West Africa are contributing heavily to global supply. That available exportable supply, combined with China pulling back, pushed cotton prices down before the latest tariff announcements.
“That’s why prices haven’t collapsed,” Devine said. “They were already low. If you’re at the bottom of the hill, you don’t have far left to fall.”
Prices began reacting in the weeks leading up to the February and March tariff announcements. Traders were already anticipating restrictions tied to the election outcome and sales to China were kept low as a precaution.
“There’s not a lot of U.S. cotton committed to China right now,” Devine noted. “The market was prepared.”
While apparel imports to the U.S. ticked up in late 2024—particularly in October—it’s unclear how much of that surge was retailers hedging against tariffs versus restocking after pandemic-related whiplash.
“It’s likely both,” Devine said. “We saw massive inventory swings after stimulus spending, freight crises, and then, a slowdown tied to inflation and recession fears. Now we’re seeing some stabilization.”
Devine brings it back to the pastry metaphor: the pie is apparel sourcing. Tariffs threaten to shrink the pie overall, but even more so, they’re shifting the slices—particularly away from China.
Cotton apparel, thanks to both pricing structures and supply diversification, may be better positioned than synthetic-based apparel to weather the shake-up.
“The size of recent tariff increases differed across different locations, with China being subjected to the largest additions to rate,” Devine said. “While China is an important sourcing location, there is no shortage of countries with the ability to supply the US with finished cotton textile items, and cotton-dominant goods have less dependence on China for supply than man-made dominant goods.”
