cotton on wood

Trade Barriers: A Surprising Thread in the U.S./Brazil Cotton War

Aug 13, 2013 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor • 287 Views    No Comments

The US might soon stop sending Brazilian cotton farmers $150 million annually.

The short version of the story is that because federal subsidies give US farmers an unfair advantage in world markets, Brazilian cotton growers protested. In 2009, the World Trade Organization (WTO) agreed and told the US to stop. To make everyone happy, instead of eliminating payments to US farmers, Congress decided to pay the Brazilians subsidies also.

All went well until sequestration.

Do you remember the sequester? It began with the 2011 Supercommittee that was supposed to resolve Congress’s debt ceiling impasse. Unable to agree on a deficit plan, the committee defaulted to automatic spending cuts that began March 1, 2013. Examples of those cuts included some spending on Navy aircraft purchases, NASA, the National Science Foundation, the FBI and FEMA. The Brazilian cotton subsidy is a part of the non-defense discretionary spending reductions (below).

From the Washington Post

From the Washington Post

Now, with the sequester unraveling Congress’s response to the 2009 WTO decision, Brazil might “cross retaliate” by targeting US autos and electronics with tariffs and ignoring drug and music patents. While it is possible that the 2013 Farm Bill will eliminate the cotton subsidies to US farmers, currently, Congressional gridlock has stalled the bill.

The impact of a cotton subsidy

Sources and resources: I will continue to be on the lookout for updates as the story of the Brazilian subsidy unfolds. For now, the latest news is in this WSJ article while you can read some background info on the trade dispute and on the sequester at econlife.

Note: The above title was sightly edited.

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