Cheap cotton, expensive manufacturing the margin crisis facing textile mills

In a year defined by aggressive tariff maneuvers and fluctuating trade relations between the world’s two largest economies, the global cotton market demonstrated a surprising level of resilience. At the annual meeting of the Discover Natural Fibres Initiative (DNFI) in January 2026, industry experts gathered to dissect a year that Jon Devine, Senior Economist at Cotton Incorporated, characterized as a "Supply Chain Squeeze".

A volatile year of tariffs

The primary narrative for 2025 was the rapid-fire succession of trade barriers. The year began with the US implementing fentanyl tariffs on Chinese imports, starting at 10 percentage points in February and climbing through March and April. By early April, the trade war reached a fever pitch:

February 1 & March 3: The US implemented two successive +10 percentage point (ppt) tariff increases on Chinese imports (fentanyl tariffs).

April 2: The US announced reciprocal tariffs, prompting China to announce parallel increases.

April 8-9: The US hiked rates for China by an additional 125 percentage points on top of previous increases, which China matched with its own +125ppt increase on US cotton.

April 9: The US dropped reciprocal rates to +10 for everywhere except China.

However, the escalation was short-lived. By May 12, both countries began rolling back these increases. By October 26, a series of deals with Asian countries halved US fentanyl-related tariffs, ultimately bringing Chinese rates on US cotton down to +10ppt.

Market stability despite the noise

Despite the high-stakes diplomacy, cotton futures remained remarkably anchored. Jon Devine noted that throughout 2025, cotton futures prices largely hovered within a narrow band of 63 to 68 cents per pound. To put this in perspective, prices have historically swung between 50 and 150 cents over the last decade

Table: Cotton price range

Supply surge and the Chinese shift

The stability in pricing was underpinned by a massive increase in global availability. The exportable supply from major world producers reached a record high for the 2025/26 season, totaling 7.8 million tonnes. This abundance gave a natural ceiling for prices, offsetting the uncertainty of the trade wars.

Simultaneously, China’s role as a primary importer underwent a shift. After reaching a Covid-era peak of 3.3 million tonnes (15 million bales) in the 2023/24 season, Chinese imports fell to 1.1 million tonnes (5 million bales) by 2024/25, a decline that occurred even before the heaviest tariff announcements of 2025 began.

Table: Cotton imports (2020-26)

Source: USDA and Cotton Incorporated

The ‘Supply Chain Squeeze’

The most pressing concern for the industry, according to Devine, is a phenomenon he calls the “Supply Chain Squeeze”. This economic pressure cooker is created by two opposing forces:

Rising manufacturing costs: Higher energy prices, labor costs, and new regulatory sustainability requirements are driving up the cost of production.

Stagnant consumer prices: Despite rising costs at the factory level, retail prices for cotton goods are not moving higher, leaving manufacturers to absorb the difference and putting extreme pressure on profitability.

Thus as the industry moves in 2026, new uncertainties have emerged. On November 5, 2025, oral arguments were held at the US Supreme Court regarding the legal justification for these tariffs under the International Emergency Economic Powers Act (IEEPA), with rulings anticipated to further impact market sentiment.

While the noise of tariff announcements in 2025 (such as the spike to 150 cents in 2022 and the subsequent retreat) has subsided, the challenge of balancing sustainability requirements with shrinking margins will be the defining battle of the coming year. With record-high supplies from exporters like Brazil and the US keeping prices down, the pressure on farmer and manufacturer profitability remains intense