Cotton Incorporated
Executive Cotton Update
U.S. Macroeconomic Indicators & the Cotton Supply Chain
April 2025
Macroeconomic Overview: Although an announcement regarding changes to tariff rates was known, the reciprocal tariff increases that were introduced by the U.S. administration on April 2nd generated a reaction that spanned financial markets. After details were released, stock markets around the world suffered significant losses and several indicators are suggesting a greater risk of recession.
The Executive Order issued on April 2nd outlined two rounds of tariff increases. The first was a baseline ten percentage point addition that went into effect on April 5th. A second round of increases, featuring “reciprocal” tariffs, is set to be implemented April 9th.
For both rounds, all rate increases are framed in terms of percentage point change and are added on top of existing rates (i.e., for the April 5th increases, the addition is not 0.10 times the existing rate, but instead implies 10 percentage points being added to the existing rate). As an example, the general duty rate for a cotton-dominant t-shirt from a location with a ten-percentage point additional duty will rise from 16.5% to 26.5%.
For the second “reciprocal” round of tariff increases, actual partner-country tariff rates are not a part of the formula that was revealed during the administration’s presentation and later explained on a U.S. Trade Representative website. Instead, the formula for deriving the range of bilateral rate increases was based on data involving the trade imbalance between the U.S. and other locations.
More specifically, the “reciprocal” rates that are going into effect were derived as the size of the bilateral U.S. trade deficit (value of imports minus the value of exports) divided by the total volume of trade between the U.S. and a given partner country or region (all trade data used were from the flow of goods in 2024). The resulting ratio was then “discounted” by dividing it by half.
In the example of China, the U.S. imported $295 billion more than it exported last year. The total value of U.S. imports from China in 2024 was $440 billion. The corresponding ratio is 67%, which divided by two gives the (rounded) “reciprocal” tariff rate of 34 percentage points that will be applied against Chinese imports starting April 9th.
In the case of China, which was subjected to earlier rounds rate increases, the “reciprocal” rates will be added on top of previous additions. The situation is evolving rapidly, but the only currently known case of exemption from the “reciprocal” round tariffs is for goods that qualify for free trade status under the USMCA (U.S.-Mexico-Canada Agreement).
Employment: The U.S. economy was estimated to have added +228,000 jobs in March. This was +110,000 more jobs than were added in February and nearly 50% higher than the average over the past twelve months. Revisions to previous months were negative, with the figure for January easing from +125,000 to +111,00 and February’s number easing from +151,000 to +117,000.
The unemployment rate rose slightly, from 4.1% to 4.2%, equaling the highest rates experienced since late 2021. While the unemployment rate has moved higher, values below five percent are low by historical standards.
Average hourly earnings increased +3.9% year-over-year in March. Wage growth has been hovering around four percent since late 2023. The latest value is the lowest since July 2024.
Consumer Confidence & Spending: The Conference Board’s Consumer Confidence Index declined -7.2 points in March to 92.9. This represented the fourth consecutive month of decline. The decrease last month was the largest in three and a half years (slightly bigger than the -7.0 point drop in February). The current value is below the range between 95 and 115 that had contained values since early 2021.
Overall consumer spending was flat month-over-month in February (+0.1%), following a decline in January (-0.6%). Year-over-year, overall spending was +2.7% higher. Spending on garments was down -0.3% month-over-month but up +2.3% year-over-year.
Consumer Prices & Import Data: The CPI for garments increased +0.8% both month-over-month and year-over-year in February. Retail apparel prices worked way higher after COVID, peaking in September last year. More recent values have been generally stable at slightly lower levels.
Average import prices have been stable since late 2023, settling in at a level around +7% percent higher than the average from 2019 (average prices per square meter equivalent or SME). Import volumes have been surging in recent months. Between October and January, the average year-over-year rate of growth was nearly 20%. In the latest data (for February), the rate of growth was significantly lower (+1.2% year-over-year), but that was due in large part to the abnormally high value posted in February last year (February imports in 2024 were up 21% year-over-year, months around then had comparatively small change). The recent surge may be due to inventory rebalancing and positioning ahead of tariffs. The impact of tariffs will be registered in future releases.