Kimberly Vardeman / Flickr A U.S. cotton farm.

The Land of Milk and Cotton

How U.S. Protectionism Distorts Global Trade

Earlier this month, Brazil and the United States struck a landmark trade agreement over a longtime point of contention: cotton. The deal—the United States pays a hefty sum to Brazilian cotton farmers in return for an opportunity to continue subsidizing its own producers—had all outward appearances of a fair compromise. Under the surface, however, the agreement concealed an uglier truth about the misbalance of power in international trade.

Both Brazil and the United States are among the top five major cotton producers, accounting for approximately ten and 30 percent, respectively, of world cotton exports in 2014. The two have been feuding for more than a decade about the U.S. government’s generous subsidies to domestic growers. These subsidies deflate global cotton prices and wreak havoc on less protected farmers in Brazil. The new U.S. Farm Bill, passed this past February, renewed these and other agricultural protections for U.S. producers for another five years and was thus a thumb in Brazil’s eye.

Brazil responded by threatening to impose retaliatory tariffs on U.S. goods and services, setting in motion negotiations that culminated in the cotton trade pact. To settle the matter, the United States agreed to pay a lump sum of $300 million to Brazil (with the aim of helping Brazilian farmers become more competitive) and to scale back its export credit programs, a form of subsidies for exports. In return, Brazil pledged not to put forth any further challenges to the Farm Bill.

Although Brazil’s cotton farmers hailed the settlement as a major breakthrough, the victory is not as straightforward as it may seem. First, the history of many similar agreements—involving a dominant player and a growing economy—demonstrates that developing countries often find their concessions to be more expensive in the long run than they initially believe them to be. Second, the U.S.-Brazilian pact echoes an all-too-common conclusion to such disputes: a buy-off by the more powerful player rather than real steps to

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