When Is It Time To Let Cotton Go? When The U.S. Begins Subsidizing Its Subsidies

By Catherine Kent
In 2002, Brazil received a favorable judgment before the World Trade Organization on the claim that the United States’s cotton subsidies violate WTO principles of fair trade by placing downward pressure on the world price. Brazil resolved to waive sanctions on the U.S. and instead receive yearly payments. The U.S. has responded by continuing its violations, and to use even more U.S. taxpayer money to do so. So what’s the problem? Aside from these harmful international effects, the cotton subsidies are part of a farm bill that take up a large amount of U.S. taxpayer dollars that could arguably be used more effectively elsewhere; the temporary deal that President Obama struck with Brazil in the beginning of October cost $300 million. Rather than reform the practice of subsidizing cotton farmers that benefits so few at the expense of so many, the U.S. would sooner pay MORE to continue this practice. 

U.S. cotton subsidies, created as part of a temporary form of relief for farmers during the Great Depression, have far surpassed their intended function. It has essentially become a permanent law, and the well-meaning subsidies that once made sense as necessary aid have morphed into a massive spending bill that drains billions of taxpayer dollars into the farming industry. Since the 1930’s, cotton subsidies have been steadily increasing as part of the farm bill, in the form of federally subsidized farmers’ insurance to protect farmers against the loss of crop or income. These subsidies have allowed the U.S. cotton market to distort the international cotton trade and harm the naturally alive cotton industries of other nations.

Notwithstanding the blatant inequity of cotton subsidies, the protection that these subsidies themselves provide is overly superfluous in light of the deep history of advantages for U.S. cotton farmers. Thanks to the abundance of free (slave) labor, the industry had an artificial jump-start. This was accompanied by the creation of the cotton gin in the 1790s, and later on the U.S. farmers’ ability to stay one step ahead of the international cotton game with farming machinery and pesticide development (think Monsanto and DuPont ). Third world nations who are arguably better suited in terms of natural resources and labor available never stood a chance, as they cannot even begin to compete with the deeply planted seeds (pun intended) of the U.S. cotton industry, topped with the Miracle Grow (a steady stream of subsidies) fed over the years by the U.S. Government.

For some reason, it took other nations’ complaints and appeals to the World Trade Organization to shed light on this huge market inefficiency. The recent $300 million payment to Brazil combined with the $90 billion subsidies for crop insurance to cover farmers from FY 2014 to FY 2023 will alert the United States to the ridiculous be protections granted to cotton farmers.

The WTO gave its blessing to Brazil to sanction the U.S. in the amount of $830 million because of the trade distortion. Brazil and the U.S. reached a settlement in the beginning of this October for $300 million to be paid to Brazil in exchange for Brazil not bringing any more WTO actions for 5 years. Aside from this pay-off having an expiration date, there are additional consequences: if the U.S. may reach a settlement that ends sanctions rather than stop the practice that inspired them, are allowed to do this, other violators (ahem, China), are likely to be emboldened to do the same. In the simplest terms, the ultimate purpose of deterring countries from violating fair trade practices is undermined by the WTO when it allows countries to pay violation fees that allow them to continue violating. Not only is this bad for the international community, but it is bad for U.S. taxpayers, who will continue to feed this artificially successful cotton industry. 

The answer is reform, not a Band-Aid. With trade globalization and a universal commitment to helping third world countries’ development being well-established concepts, it is hard to argue that the U.S. should not unplug the domestic cotton industry – allow it to die, move on to more self-sustaining industries, and allow the international cotton price to reflect its true market value. Sure, ripping off the Band-Aid hurts a little, but the sting is temporary and necessary to allow taxpayer dollars to be used in a way that provides more benefit to more people domestically, and fosters an even-playing field internationally.