Chinese Tariffs on U.S. Energy Would Signal a New Attitude
In placing retaliatory tariffs on certain goods and products, America’s trade partners have signaled how well they understand American politics. By targeting products from areas supportive of President Donald Trump, they clearly hope to generate pressure to lift U.S. tariffs or even create broader political problems for the president. But China is sending much more interesting — and complex — messages with its indication that it may place retaliatory tariffs on U.S. energy exports.
Since the 1990s, China has made it a priority to secure adequate energy imports to fuel its economic growth. Acquiring this energy was, and to some extent still is, a major driver of China’s foreign policy. The fact that China now feels comfortable creating obstacles to the acquisition of some energy from abroad suggests several things.
First, and most obviously, China has assessed that tariffs on this energy trade will cause the U.S. more pain than they will cause China. This is likely an accurate evaluation. In a very short period of time, the U.S. has become a significant exporter of crude oil, liquefied natural gas (LNG) and refined energy products. Its energy trade with China, originally stymied by a mutual concern over the wisdom of building energy trade between the two countries, has blossomed. In 2017, the value of U.S. energy exports to China was greater than what either Turkmenistan or Qatar sent to the Middle Kingdom. It represented 6 percent of all U.S. energy trade, according to the International Energy Trade Centre.
In imposing tariffs on this trade, China could not only deprive the U.S. of a lucrative trade, but also have lasting effects on the development of American LNG trade — something the Chinese likely correctly assess matters a great deal to Trump. The U.S. is now at a point when new investment decisions must be made to build additional LNG export facilities if U.S. natural gas exports are going to grow in the coming years. Given that China is the fastest-growing market for natural gas imports in the coming years, tariffs that make U.S. LNG uncompetitive in this market could throw an important spanner into the investment decision process, potentially complicating the ability of the U.S. industry to take its expected place as the third-largest exporter of LNG by 2020.
Read more: https://www.bloomberg.com/view/articles/2018-07-10/chinese-tariffs-on-u-s-energy-would-signal-a-shift
China receives a shipment of liquefied natural gas from Australia. Source: VCG, via Getty Images
