It would be difficult for Australia to disentangle itself from the supply lines that connect the Xinjiang cotton fields to its retail clothing industry.

Almost two-thirds of the clothing sold in Australian stores is manufactured in China, according to United Nations trade data. For some cotton products, China’s share is much greater than the average. About 80% of men’s underwear, 90% of handkerchiefs and as much as 98% of some categories of cotton fabric come from China.

Only about 4% of Australia’s clothes are manufactured locally, and much of that uses Chinese fabric and yarns.

Xinjiang accounts for 87% of China’s domestic cotton production. In between the Xinjiang cotton fields and the Australian shops are the gins to separate the fibres before they’re spun into yarn, woven into fabric and then cut and sewn into clothing.

At each link in this chain, the mix of raw material supply can vary. While China accounts for 21% of global cotton production, it doesn’t produce enough to meet the needs of its apparel industry. China has to import about a quarter of its cotton.

Chinese-made fabric may contain cotton from a variety of both Chinese regional and international sources, and China exports both cotton yarn and fabrics to apparel-manufacturing nations across Asia. Xinjiang cotton can find its way into clothing without importers necessarily being aware of it.

China was an important customer for Australian cotton, buying about 70% of its crop, which in turn filled about 10% of China’s import needs, until last October when the Chinese government told mills to stop their purchases as part of the campaign of economic coercion against Australia.

Australia no longer has a cotton-spinning industry, so the entire crop is exported. The Australian cotton sector is confident that other buyers can be found in Asia.

Although the US has led the campaign against the use of forced labour in Xinjiang, it has been the chief beneficiary of the informal bans on Australian cotton. China’s share of US exports rose from around a third to a half in the closing months of 2020.

The US retains some capacity to process its own cotton and make yarn and clothing, but it still exports about 90% of its crop for processing, predominantly in Asia.

In December, the Trump administration imposed sanctions on products derived from Xinjiang cotton. Clothing manufacturers have to demonstrate that their supply chains do not include cotton from Xinjiang. US Customs and Border Protection clarified in January that the ban applied to products ‘made in whole or in part’ from Xinjiang cotton ‘regardless of where the downstream products are produced’.

The Washington Post reported last month that US Customs and Border Protection was warning that ignorance was no longer an excuse. ‘CBP’s message to the trade community is clear: Know your supply chains.’

Major US brands had been coming under growing pressure to abandon cotton from Xinjiang over the previous year. ASPI’s report Uyghurs for sale in March last year, highlighting the dependence on Uyghur forced labour by 82 major brands, contributed to that pressure.

The ‘Better Cotton Initiative’, which was started by the World Wildlife Foundation in 2005 to improve labour practices across the global cotton industry, last year suspended its licensing of Xinjiang-produced cotton, leading a number of major brands, including H&M, Gap, Nike and Ikea, to stop cotton purchases from the region.

Some clothing brands are avoiding Chinese-made fabric altogether just to be certain they’re not breaching US sanctions.

It’s easier for the US, which obtains 70% of its clothing imports from non-Chinese sources, to make that switch than it is for Australian importers, who get just 35% of their supplies from outside of China.

The US ban is having an effect. The Washington Post report cited a profit warning from Chinese yarn manufacturer Huafu Fashion telling investors that ‘multiple American brands have canceled orders’, which was contributing to losses.

After the coordinated US, UK, EU and Canadian sanctions were imposed last week on officials connected with China’s policy towards the Uyghur minority, China’s Communist Youth League called for a boycott of the Swedish retailer H&M, which has about 400 stores in China.

This was followed by calls on Chinese social media for boycotts of Nike, Adidas, Zara, Burberry, Fila and Gap. For many major Western clothing brands, China has been their biggest growth market for the past decade. China is the world’s biggest apparel market, accounting for about 24% of global sales, followed by the US with 19%.

‘Chinese people have the right to express their feelings. They do not accept the fact that foreign companies earn money from them on the one hand and smear China on the other,’ foreign ministry spokesperson Hua Chunying said.

The tension between human rights pressure in brands’ home markets and the commercial profit made from China is showing. The nationalist Chinese daily Global Times noted that Spanish retailer Zara had removed a statement from its website asserting it did not purchase supplies from Xinjiang.

Hugo Boss had a bet each way, posting a comment on China’s Weibo that ‘Xinjiang long cotton is one of the best in the world, we believe quality raw materials would show its value. We will continue to buy and support Xinjiang cotton,’ while its main website continued to declare it did not buy any goods directly from Xinjiang.

In the organisation of global supply chains, the major Western companies have focused on design and brand management, while leaving the processing of raw materials, the spinning of yarn, the weaving of fabric and the manufacture of clothing to contractors in China and elsewhere. While the largest profits have been in the design and brand management areas, the share of those profits that has come from China is now under threat.

The Global Times commented that for Chinese suppliers that depended on orders from multinational firms, the Western boycott of Xinjiang cotton made it timely to refocus on the domestic market, saying this was consistent with the government’s ‘dual circulation’ economic strategy.

The global apparel industry can adjust, although exclusion from Chinese markets would cause heavy losses for the major brands.

There are about 80 nations that grow and trade cotton, and Vietnam, Bangladesh, Pakistan and India are increasing their shares of global apparel production. The extreme dependency on Chinese supplies evident in Australia is not the case globally.

A shift by the big apparel brands away from China, whether by choice or coercion, is likely to result in the growth of non-Chinese markets for Australian cotton.