China’s market manipulations nothing new to America’s farmers

China gained the attention of the whole world when it sent global financial markets into a six-day tailspin during which U.S. stocks lost $2.1 trillion in value, slightly less than the entire value of the British version of the Standard & Poor’s 500 index. This appraisal does not include early September sell-offs.

Media reports cited the Chinese government’s extraordinary interventions to manipulate its financial markets, using everything from currency devaluations to large-scale stock buying, the latter timed to rally markets for a national parade, of all things.

{mosads}While some may be surprised to read of the Chinese government’s caprice in the handling of its economic affairs, with its cascading effects upon the rest of the world, American agriculture’s astonishment over all of this is on par with Capt. Renault’s when he learned of gambling at Rick’s Cafe in “Casablanca.”

Many Americans have witnessed and suffered from communist China’s economic policies, including more than 1 million Americans who lost their jobs in the textile industry, once the largest manufacturing employer in the U.S. economy. That mass exodus of a proud industry from our shores hit America hard, from the cotton fields of Texas to the textile workers in New York and Pennsylvania on down to the Carolinas and Georgia, and to places West.

And, for American agriculture, the hits from the Chinese government have just kept on coming, perhaps especially — though by no stretch exclusively — for America’s cotton farmers, who boost our nation’s economy by an estimated $100 billion every year.

Just a few years ago, the Chinese government decided on a policy to build up its stocks of upland cotton — the kind of cotton used to make things like denim jeans — through aggressive purchases on the world market, which fueled a boom that caused cotton prices to reach levels not seen in 150 years. Prices soared as high as $2.27 per pound for a crop that very seldom comes close to fetching a dollar. In time, China was sitting on domestic stocks equal to three years of U.S. production but maneuvered to keep available supplies tight enough to maintain relatively strong prices.

Then, last year, the Chinese government just as inexplicably reversed course, sharply curbing cotton purchases and instead offering huge incentives — about a $1.40 per pound, which is more than twice the world market price — to its domestic producers to grow upland cotton to feed the textile mills brought over to China from the United States. Naturally, production spiked and cotton prices earned by U.S. farmers plunged, by nearly a third compared to the previous four-year average, into the mid-60 cent range. U.S. farmers responded by planting less cotton — a lot less — with acreage down nearly 40 percent compared to 2011 and nearly 20 percent from just last year, with this year’s acreage the second lowest on record since the Department of Agriculture began keeping data in 1909.

Now, this past month, The Economic Times reports that China’s extra-long staple (ELS) cotton crop — used to make things like luxury bedding — will be three times larger than last year, with the Chinese government offering farmers subsidies 1.3 times higher than the already astronomically high subsidies it offers for upland cotton. This latest move by the Chinese government will undoubtedly wreck the ELS market for American farmers as well.

In short, the erratic behavior by the Chinese government that has sponsored six days of financial turmoil in the world financial markets is the same behavior that has led to years of chaos in the cotton market. China wanted and got our textile industry. As of 2013, China owned two-thirds of the world’s production.

And now, by all appearances, for China, owning and controlling the production of cotton is next.

With Chinese cotton producers — and cotton producers in other key countries around the world — so heavily subsidized and so jealously protected by their governments, American cotton farmers are getting battered in the global market. Coming off of multiple years of D-4 drought, the severest level, or still very much in drought’s grip, a good many of America’s cotton farmers never partook in the market run-up that Chinese government actions caused because they did not have a crop to sell. Moreover, these farmers also never got the chance to build up the kind of reserves needed to weather the sort of financial storm China is now creating.

And, sadly, while cotton farmers do have insurance to cover at least a portion of weather-related losses when disaster hits, they have no recourse against China’s actions. What little recourse they once had under the farm bill is now gone, thanks to the World Trade Organization (WTO) that ruled that U.S. cotton policy harmed Brazilian producers. This is ironic given Brazilian cotton is some of the most heavily subsidized in the world, a point that brings to light one of the great failings of the WTO, which gives powerhouses like Brazil and China a free pass on trade rules.

Fortunately, there are still some tools in the farm bill that can be used to help keep China from taking American cotton production just as it took our textile industry. For any doubters, Aug. 24, 2015, Black Monday, serves as a helpful reminder that America’s cotton farmers are not being dealt lousy cards by Adam Smith’s “invisible hand” but by the very visible hand of the Chinese government.

America’s cotton farmers are the most efficient in the world and they can compete against any other producer in a free and open market. But putting them up against the Chinese government with nothing to fight with is not a fair fight. The United States must not wait so long that we live to regret the unfair defeat and loss of yet another great American industry.

Combest represented the 19th Congressional District of Texas from 1985 to 2002 and chaired the Select Committee on Intelligence and the Agriculture Committee. He is now a principal at Combest Sell & Associates.