Issues & Insights

Trump’s China Trade War Puts Energy Gains In Jeopardy

Chinese trade officials — led by Vice Premier Liu He — will be back in Washington this week to continue negotiations with the Trump administration in the ongoing tit-for-tat trade war between the two nations.

There is a glimmer of hope that both sides could ease the trade dispute given the White House’s decision to delay the increased tariffs that were set to go into effect on October 1 and the Chinese resuming soybean purchases from American farmers. Indeed, President Trump commented on the current state of play, telling reporters “We’ve had good moments with China. We’ve had bad moments with China. Right now, we’re in a very important stage in terms of possibly making a deal.” 

That’s good news to hear as there is still much at stake, especially for the nation’s booming energy sector, should this next round of negotiations fail.    

The United States is experiencing historic growth in high-quality crude oil production that is not well suited for domestic refineries. Crude oil exports are projected to increase sharply in the next several years. Natural gas production growth is also outpacing domestic demand.  U.S. oil and gas companies will need to expand exports of crude oil, refined products, and natural gas. China presents an ideal market opportunity for U.S. energy, which is put at risk by a prolonged trade war. 

Should Chinese-American trade relations continue to deteriorate, oil exports will further suffer. For more evidence, the Energy Department’s Energy Information Administration cut projections for global oil consumption for the seventh consecutive month as growth in global GDP weakens.

Already China receives 19% of U.S. oil exports. Energy experts anticipated growth to track toward 243 million tons oil equivalent of energy exports by 2040 but worsening trade relations with China would level that to 80 million tons, a 67% decrease, according to a data review in BP’s 2019 Annual Energy Outlook.

The trade war with China isn’t just hurting U.S. energy exports in the global marketplace. U.S. energy production is getting more expensive. The retaliatory tariffs introduced on September 1 raised costs another 5% on many critical components of offshore natural gas and oil drilling equipment imported from China.

Increased costs are passed along to consumers, raising ratepayers’ bills, and making American energy less competitive in the marketplace.

Case in point: After President Trump’s announcement of the tariff hike in early August, Dow Jones Industrial Average, S&P 500, and NASDAQ all experienced one of the worst performance drops for three indexes in 2019.

Additionally, disruptions to Chinese-American relations, the world’s largest trade relationship, will undoubtedly create opportunities for the realignment of others, particularly China and Russia.

Some noteworthy changes are already underway on energy trade as Velina Tchakarova, head of the Austrian Institute for European and Security Policy, noted in Newsweek, “China provides the liquidity and Russia provides the natural resources … a new connectivity is being explored … to balance the U.S.-dominated global supply chains.” Furthermore, Russian Prime Minister Vladimir Putin has ordered state-owned natural gas company Gazprom to increase exports to China while developing additional delivery routes for Russian energy exports.

The chilling of Chinese-American relations in the midst of an American energy resurgence has encouraged the Chinese to reject market access by American companies and open the door for increased oil and natural gas imports from Russia.

While the prospects of a trade deal remain uncertain, the Trump administration and Congress can hedge itself against unwanted Chinese risk by re-strengthening trade relationships with North American neighbors – our largest trading partners – through the United States-Mexico-Canada Agreement.

The confidence in secure trade partners to the North and South can re-instill confidence in American energy and business until trade tensions with China subside. Until then the tit-for-tat tariff barrage risks undoing the economic and employment growth of recent years.

Guy Caruso is senior adviser for the Energy and National Security Program at the Center for Strategic and International Studies.

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  • That may be one of the worst articles I’ve seen on I&I … If China doesn’t buy our oil and gas plenty of others will … and today China buys coal … Lots of it and that isn’t going to change … The trade war in np way threatens our energy production dominance who we sell too never would …

  • The author uses his headline to call this issue “Trump’s trade war”. The Communist dictators in China have been at war with the free world since 1949. Perhaps he’s too young to recall. China advanced its interest in economic hegemony by currency manipulation, espionage, theft of intellectual property, and the erection of thousands of trade barriers to prevent competition and mandate technology transfer. The Communists’ long term goal was to transfer the world’s industrial base to China. Guess what? American presidents joined in the fun! Now the Communist dictators order American companies to be silent. And the American companies comply. Does the author look forward to the day that he isn’t allowed to discuss China in print?

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