U.S.-China Energy Trade: Challenge and Opportunity

There is a Chinese proverb that says with crisis comes opportunity and change.

Relations between the United States and China may not be in crisis, per se. Still, the ongoing disputes over trade volumes and intellectual property rights have led to a breakdown between the world’s two largest economies.

The phase-one trade deal signed by presidents Donald Trump and Xi Jinping earlier this month is a good first step in repairing that relationship, but plenty of hurdles remain, including tariffs imposed in the past two years that are still in place.

The benefits of closer relations and cooperation between the United States and China far outweigh the risks, however. Nowhere is that more evident than in the trade of energy commodities, which has the potential to reset the trade imbalance and alleviate growing concerns over Beijing’s policies.

Since opening to foreign trade and investment more than four decades ago, China has been one of the world’s fastest-growing economies, with real annual gross domestic product growth averaging 9.5 percent through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.”

China’s total GDP in 1980 was less than $90 billion in current dollars. Today, it is over $12 trillion.

China is the largest U.S. merchandise trading partner, biggest source of imports and third-largest U.S. export market. According to U.S. trade data, total trade with China grew from $5 billion in 1980 to $660 billion in 2018.

The U.S. trade deficit with China was expected to end 2019 at approximately $353 billion, according to data from the U.S. Census Bureau. The Trump administration wants to shrink that number by at least $200 billion. China’s rising economic performance and transition to a consumer-driven economy offer an opportunity to increase U.S. exports to China, especially in energy resources, without the damaging use of tariffs.

As China’s economy grows — Chinese middle-class consumers are expected to outnumber the entire U.S. population by 2026 — so too does its need for energy, especially oil and natural gas, which are resources the United States has in abundance.

China is a prized market with exponential growth potential for U.S. producers. Treasury Secretary Steven Mnuchin has said increasing the flow of U.S. energy to China could “easily get about $40 or $50 billion of energy” sales.

All that growth comes at an environmental price. China is the world’s largest producer of greenhouse gases and is responsible for half of the coal burned today. As its middle class expands, Beijing is under increasing pressure to reduce pollution.

A 2018 report by ExxonMobil estimated that China contributed 60 percent of the growth in global carbon dioxide emissions between 2000 and 2016 and that its emissions will surpass the combined carbon dioxide levels of the United States and European Union by 2025.

The Chinese government is taking steps to reduce energy consumption, boost enforcement of environmental laws and regulations and replace coal-fired generators with natural gas. China has also become a major producer and user of clean and renewable energy technologies.

The U.S. Commerce Department lists China as the largest and fastest-growing emerging market for environmental technologies, and it leads the world in the generation of electricity from renewable sources of energy. According to China’s Ministry of Ecology and Environment, the country’s total environmental technologies market is worth over $77 billion.

Greater cooperation with the United States is the surest way for China to modernize its energy sector. Lowering trade and investment barriers would boost competition in China, reduce costs for consumers, increase economic efficiency and spur innovation. The energy technology trade represents a trillion-dollar opportunity for the United States and is crucial for global efforts to address climate change.

Policies pursued in Washington and Beijing will drive the direction of energy research and innovation in clean fossil, renewable and nuclear energy around the world — all technologies that are necessary to transition to a low-carbon future while maintaining energy security and growing economic prosperity. That is why it is important to maintain an open-door policy between the East and West and to increase bilateral cooperation and collaboration in the areas of advanced energy research, investment and trade. 

Dr. S.T. Hsieh is director of the U.S.-China Energy and Environmental Technology Center and a professor emeritus at Tulane University in New Orleans. 

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