Research On Market Power Of China-Us Cotton Trade

Cotton is one kind of important strategic goods and materials which is related with national economy and people’s livelihood. Cotton not only involves the interests of Chinese cotton planters, but also serves as life necessity for ordinary people, and is the indispensable original materials of textile industry as well. Textile industry is traditional essential industry for the economic development in our country. It shoulders the important responsibilities for creating more jobs and earning foreign exchange through exports. As the development of our economy and textile industry, because the lack of land resources and plant technology, though our country is the largest cotton producer in the world, the gap between supply and demand remains wide. The balance between supply and demand has to be achieved by cotton import.In terms of the position of our country in cotton trade, views of many scholars diversify according to the differences of perspective. US is the largest cotton exporter in the world, occupying the first position in terms of China’s cotton import amount. Thus, the research in market power of Sino-US in cotton trade has important theoretical significance and realistic value for explaining if China has bargaining capability in cotton trade, and maintaining interests of Chinese middle and small cotton traders and cotton users.This paper mainly conducts a two-country partial equilibrium model to test Sino-China market power of cotton trade. The research also combines influencing factors which will affect residual supply and residual demand to expand this model so that this model may be more explanatory. In addition, this research analyses the cotton trade chain in the US and describes the functions of parties of interest. By comparing how China and USA controlling the links of the trade chain, we can have the results that why China doesn’t get the market power while the US have the market power. Based on the results, policy suggestions are given.This research finds that China can’t affect prices by changing imports amounts to get market power. Rigid demand arose by economic development and textile industry will impair China’s market power. And China’s capability of looking for substitutes of American cotton is not good. On the other hand, the US gets market power in cotton trade, and export prices are affected heavily by prices received by farmers. By estimating trade profit and loss degree, we can see that China bears much loss because of lack of market power. Moreover, this paper shows the cotton trade chain in the US and underlines the important roles of American industry organization and intermediate traders. Week control of essential links such cotton processing, market structure, transportation and pricing serves as the main factor of lack of market power. American cotton traders own larger bargaining capability through integrating industrial chain, strengthening control of links of cotton trade chain, scale advantage and market share.Consequently, this research holds the view that in order to improve the market power in cotton trade, the Chinese government has to play the utmost role in guiding and organizing to establish and perfect bonded area, set up authoritative line organization and cotton information releasing center, improve trading system and try to reduce concentration ratio of cotton export.