By Sonny Atumah
Last month, the disposition was a petty quarrel over protectionism between the world’s two largest economies, the United States and China. The row might have caused disintegration in the foundations of America’s relationship with China.
The United States is perceived to be on the back foot, with geopolitical events that favour China which has moved from a global follower to a global leader. The geopolitical calculations of who is the supremo are manifesting as they rise to the bait using protectionism to foster their positions.
Through targeted tariffs both countries have started what appears like a betting card game. It sounded jocular when President Donald Trump characteristically tweeted that the United States would impose tariffs on steel (25 percent) and aluminium (10 percent). America imports 90 percent of aluminum to make products from beer cans to fighter jets.
Trump promised to rebuild the American steel and aluminium industries, which he said had suffered “disgraceful” treatment particularly from China. When our country can’t make aluminium and steel…you almost don’t have much of a country.” That was Trump’s belief.
On April 3, the United States published a long list of Chinese exports that could see tariffs in the near future. Trump announced that his administration would impose an additional US$100 billion tariffs on Chinese imports. The Chinese government retaliated by imposing tariffs on farm commodities among 106 products include plastics, petrochemicals, petroleum products and specialty chemicals from the United States.
China countered the American protectionism plans that it “will follow suit to the end and at any cost, and will firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people.”
Beijing is ready to impose levies on petroleum products as retaliatory moves for duties on its hi-tech products imposed by Washington. But this would invariably affect the cost of energy for the middle-class Chinese with high-energy consuming lifestyles. Again, different energy sources may affect industry input costs on products. China is the world’s biggest oil importer and the biggest Asian buyer of American oil and liquefied natural gas, LNG.
As crude oil production in China fell by about 3.85 million barrels per day, bpd over the years it was to offset the shortfall by imports that have risen to 8.43 million bpd hitting a record-high of over 9 million bpd last November.
That it was ready to use energy as a weapon against the United States meant it had long prepared for such eventuality with alternative sources of supplies including the Middle East. National pride may be at stake. Expert opinion is that America’s economic challenge to China is against Beijing’s ideological and geopolitical challenge to Washington. China’s mission to strengthen its territorial and maritime claims in the South China Sea and end America’s dominance of the world’s most important commercial sea routes in the west Pacific seem to be the underlying reason for the ‘odd’ behahiours.
Increased tariffs could see an adjustment of global trade flows, Steve Lewandowski, vice president of global olefins at IHS Markit had said. Since there is currently enough capacity of key plastics to meet global demand, China could potentially source the products from elsewhere, and the United States would then step in to supply other markets. The impact of tariffs may not cancel planned projects but the effects of a trade war could slow global economic growth.
The impact of tariffs on the products China targeted across the chemicals, energy and plastics could be significant in the U.S. chemical industry. China singled out only one of three main types of polyethylene commonly used in packaging, which is fairly well supplied in China. Many parts of the U.S. chemicals industry are set up to meet domestic demand, but Chinese tariffs raise questions about the ability of American companies to sell their surplus products on the international market.
China which natural gas imports hit an all-time high last December is shifting to natural gas to reduce its dependence on coal, which is causing serious environmental concerns. China imported about 750 million cubic feet per day, MMcfd of American LNG in the fourth quarter, Q4 of 2017.
Last year, China was the third-largest buyer of propane, behind Japan and Mexico, accounting for about 13.6 percent of U.S. exports. A reliance on imported crude for households and factories to get heat and electricity from gas, but cars drive on gasoline, and petrochemicals production is set for further growth.
Pundits believe the situation as presented would not snowball into a trade war as Trump believes that trade wars are good and easy to win. China may not use energy as a weapon too soon because the perceived trade war is beyond economics.
The two countries know the effect of economic depression. The great depression was caused by tariffs in late 1929. Energy experts believe the two countries would come to an agreement as they have shown interest in the Trans Pacific Partnership, TPP. The TPP that controls 40 percent of global economy is designed to cut tariffs, or import taxes, that free trade supporters say are barriers to trade.