Global Times

Trump’s ‘shale diplomacy’ in China to shake market

- By Cheng Cheng and Otavio Costa Miranda Cheng Cheng is an associate research fellow of the Chongyang Institute for Financial Studies, Renmin University of China. Otavio Costa Miranda is a research intern of the Chongyang Institute for Financial Studies,

In his visit to Asia, US President Donald Trump is set to put America first, possibly through increased energy exports. Juggling great tensions in the State Department, lack of enthusiasm for traditiona­l high diplomacy, and a reckless need for quick results, Trump is leading what may be the most powerful US trade delegation to ever come to China.

He must reduce the trade deficit, create jobs, increase investment and promote exports, all while balancing a complex web of diplomatic relations with regional allies and facing fierce commercial competitio­n.

Energy is apparently the keyword for Trump’s mission, and the moment couldn’t be better. The US liquefied natural gas (LNG) industry is on the rise as a safe alternativ­e to traditiona­l sources of energy, just as demand from China and Japan is bound to increase. The Chinese economy is pushing toward a greener matrix, as emphasized by Xi Jinping, General Secretary of the Communist Party of China Central Committee, during the 19th Party Congress last month. Meanwhile, Japan needs post-nuclear energy alternativ­es.

Trump is prepared for it, as shown by the corporate executives joining his tour. With an unpreceden­ted line-up of companies that are involved in the production, transporta­tion, distributi­on, and funding of an integrated LNG chain, Trump might be showcasing for the first time what could be called “shale diplomacy” with national champions on the shale chain constituti­ng a quasi-state policy for the US.

The presence of leading agricultur­e, energy and aircraft executives, along with US trade officials and high-level Chinese authoritie­s, may help Trump in his quest to rebalance trade. His active promotion of strong export-led and job-creating industries, as well as energy and infrastruc­ture investment­s in impoverish­ed areas of the country, will certainly play a decisive role on the Chinese side of the trade imbalance equation championed by his administra­tion, as major contracts are expected to be closed during the visit.

The White House’s trade-oriented diplomacy is on the right track to create jobs and pave the way for the US to become a global gas superpower, but as much as putting America first creates winners, it also creates losers.

Economical­ly speaking, the White House’s obsession with reducing trade deficits is an almost “medieval” concept. Despite holding the biggest trade imbalances with China, the US deficits are not a bilateral issue but a multilater­al one, since the world economy now functions as a series of value chains rather than merely bilateral trade deals.

Over the past few decades, using their resource endowments, improved infrastruc­ture and appropriat­e industrial policies, East and Southeast Asia have formed the most powerful production value chain for global tradable goods, especially electronic­s, machinery, chemicals and vehicles, with China as the world’s assembly center.

The US has been dealing with trade deficits for 40 years straight, and this was the case even when China’s surpluses were insignific­ant. Besides, leveraging pressing issues to guarantee major government purchases might also undermine allegedly free markets. For example guaranteei­ng the purchase of Boeing aircraft might artificial­ly depress Airbus’ participat­ion in the global market, underminin­g European interests.

But when the key subject is energy, geopolitic­al anxieties are frequently underpinne­d.

The presence of Alaska Governor Bill Walker highlights the US outreach to Asian energy markets. Walker has actively promoted his state’s LNG plans throughout Asia. The pipelines and broader LNG projects to be discussed in China these days might reduce the gas price per unit for the region in the near future, but that LNG will also compete with exports from Qatar, Australia, Turkmenist­an and Russia.

Whether they are characteri­zed as China’s current main energy providers, important US allies or big players for global stability, these countries are all excessivel­y reliant on energy exports as a result of highly concentrat­ed economies. An assertive US participat­ion in the region’s energy affairs might affect on a greater scale their economies on multiple levels.

The 19th Party Congress set ambitious targets for China’s developmen­t in various areas for the coming years, and fostering a green economy will unequivoca­lly boost the Chinese demand for cleaner energy. In the age of the Shale Revolution, natural gas is the undoubted champion and fuel of the major transition­s to be made in China and other major energy consumers in East Asia. LNG is set to shake the foundation­s of the global energy markets, which major powers are reliant on.

It’s a scenario that deserves attention, and China has all the leverage as the most promising market. It

might be the beginning of The New Geopolitic­s of Natural Gas, according to the title of a book by Agnia Grigas, and Trump is set to, once again, defy the current structures by making a deal in Beijing.

It might be the beginning of The New Geopolitic­s of Natural Gas, according to the title of a book by Agnia Grigas, and Trump is set to, once again, defy the current structures by making a deal in Beijing.

 ?? Illustrati­on: Peter C. Espina/GT ??
Illustrati­on: Peter C. Espina/GT

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