August 10, 2018
China yields to US oil market power
By
Thomas Lifson
If the US is about to engage in a trade war with China, the Middle Kingdom has just signaled that it wants that conflict to be a limited war by exempting a major (and growing) US export to China, crude oil. The
Wall Street Journal reported:
As China
made good on its threat to impose 25% tariffs on $16 billion worth of U.S. imports, one big-ticket item originally on its hit list was conspicuously missing: crude oil.
Oil had been one of a slate of targets China listed in June for tariffs to counter those the Trump administration threatened on Chinese imports. The gambit
jeopardized a budding relationship: Over the past two years China has become the biggest buyer of U.S. crude-oil exports, last year taking a fifth of the total.
But oil was off Wednesday’s final list.
The reason is quite simple: China desperately needs to import oil, and the US is the fastest-growing source of crude oil exports on world markets, including China.
Source:
Wall Street Journal
That means that China can’t shun US oil, even if it wants to strike back at the US in order to maintain the structure of trade regulation and tariffs that enables it to run gigantic trade surpluses with the US. Moreover, the new sanctions on Iran mean that China won’t be able to replace US crude with Iranian sourced-oil.
President Trump, in other words, has accurately read the underlying power dynamics of the US-China trade relationship and understands China’s vulnerabilities.
Analysts and industry insiders said the change could signal that
China is reassessing its bluster, given its slowing economy, the ease with which crude sellers can find new buyers—and, most of all, its climbing reliance on foreign oil. China depends on imports for 70% of its energy needs, and the International Energy Agency forecasts that will climb to 80% by 2040.
“China would be shooting itself in the foot if they tax [crude oil] imports,” Shane Oliver, an analyst at AMP Capital Markets, said. “China’s economy is heavily dependent on oil.” [Emphasis added]
Oil (and soybeans and other big US commodity exports) is traded on global markets, which means that a Chinese tariff on US commodities doesn’t destroy the market, it merely shifts supply or demand to other countries:
“The U.S.’s light crudes aren’t going to go away,” said Erik Norland, senior economist at CME Group. “If it’s not exported to China, it will be exported someplace else, and those could be other countries in this region or other parts of the world.”
The same is true for soybeans. If China buys Brazilian soybeans instead of US exports, the markets that Brazil formerly exported to will have to switch to US suppliers. Instead of the predictions of disaster for US farmers, the market price for soybeans in China is now rising, as
Reuters notes:
China’s soybean and soymeal prices jumped on Wednesday, with beans posting their biggest daily gain in a decade, as data showing a drop in soybean imports stirred supply concerns as a bitter trade dispute between Washington and Beijing plays out.
Gee, do you think it’s possible that President Trump knows more about negotiating than the nervous nellies that scream about trade wars damaging America?
If the US is about to engage in a trade war with China, the Middle Kingdom has just signaled that it wants that conflict to be a limited war by exempting a major (and growing) US export to China, crude oil. The
Wall Street Journal reported:
As China
made good on its threat to impose 25% tariffs on $16 billion worth of U.S. imports, one big-ticket item originally on its hit list was conspicuously missing: crude oil.
Oil had been one of a slate of targets China listed in June for tariffs to counter those the Trump administration threatened on Chinese imports. The gambit
jeopardized a budding relationship: Over the past two years China has become the biggest buyer of U.S. crude-oil exports, last year taking a fifth of the total.
But oil was off Wednesday’s final list.
The reason is quite simple: China desperately needs to import oil, and the US is the fastest-growing source of crude oil exports on world markets, including China.
Source:
Wall Street Journal
That means that China can’t shun US oil, even if it wants to strike back at the US in order to maintain the structure of trade regulation and tariffs that enables it to run gigantic trade surpluses with the US. Moreover, the new sanctions on Iran mean that China won’t be able to replace US crude with Iranian sourced-oil.
President Trump, in other words, has accurately read the underlying power dynamics of the US-China trade relationship and understands China’s vulnerabilities.
Analysts and industry insiders said the change could signal that
China is reassessing its bluster, given its slowing economy, the ease with which crude sellers can find new buyers—and, most of all, its climbing reliance on foreign oil. China depends on imports for 70% of its energy needs, and the International Energy Agency forecasts that will climb to 80% by 2040.
“China would be shooting itself in the foot if they tax [crude oil] imports,” Shane Oliver, an analyst at AMP Capital Markets, said. “China’s economy is heavily dependent on oil.” [Emphasis added]
Oil (and soybeans and other big US commodity exports) is traded on global markets, which means that a Chinese tariff on US commodities doesn’t destroy the market, it merely shifts supply or demand to other countries:
“The U.S.’s light crudes aren’t going to go away,” said Erik Norland, senior economist at CME Group. “If it’s not exported to China, it will be exported someplace else, and those could be other countries in this region or other parts of the world.”
The same is true for soybeans. If China buys Brazilian soybeans instead of US exports, the markets that Brazil formerly exported to will have to switch to US suppliers. Instead of the predictions of disaster for US farmers, the market price for soybeans in China is now rising, as
Reuters notes:
China’s soybean and soymeal prices jumped on Wednesday, with beans posting their biggest daily gain in a decade, as data showing a drop in soybean imports stirred supply concerns as a bitter trade dispute between Washington and Beijing plays out.
Gee, do you think it’s possible that President Trump knows more about negotiating than the nervous nellies that scream about trade wars damaging America?
Read more:
https://www.americanthinker.com/blog/2018/08/china_yields_to_us_oil_market_power.html#ixzz5NmfBYSBG
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