New China Trade ‘Deal’ Takes U.S. Back to Where It Started

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Cypress

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New China Trade ‘Deal’ Takes U.S. Back to Where It Started​

If a handshake agreement holds, it will merely undo some of the damage from the trade war that President Trump started.

After two days of tense negotiations, the United States and China appear to have walked back from the brink of a devastating economic conflict — maybe.

Officials from the two countries reached a handshake agreement in the early hours of Wednesday in London to remove some of the harmful measures they had used to target each other’s economies as part of a clash that rapidly intensified in recent months.

It remains unclear whether the truce will hold — or crumble like one struck in May did. Even if the agreement does prove durable, its big accomplishment appears to be merely returning the countries to a status quo from several months ago, before President Trump provoked tensions with China in early April by ramping up tariffs on goods it produces.


 

Trump’s latest trade ‘deal’ with China underscores key U.S. disadvantage​


For the second time in two months, President Donald Trump on Wednesday touted a “deal” with China. There’s one problem: It’s largely the same deal the two countries agreed to last month.

And the initial readouts of the handshake agreement underscore just how far the Trump administration is from achieving its larger goals in the trade negotiations with Beijing.

 
Rare Earths......We need them, China dominates production, it would take a decade to establish new supply chains.
 






Arnaud Bertrand

@RnaudBertrand
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This is a fascinating analysis by CSIS on the use of ethane export controls by the U.S. as a retaliation tool again rare earths (as was just done by the Trump admin): https://csis.org/analysis/us-china-trade-talks-london-ethane-export-controls-and-need-better-economic-statecraft…More than anything it illustrates how few cards the U.S. has, because as per the analysis it's clear than restricting ethane exports is a desperate measure that "inflict more damage on U.S. companies than Chinese competitors" (unlike rare earths in China's case, that can bring complete chunks of the U.S. economy to a halt without hurting China much). In fact the analysis says that ethane controls "fail to clear even the lowest bar for an economic weapon."How so?First of all, ethane is principally used to produce ethylene, a raw material for making plastics (especially polyethylene) as well as a building block for numerous chemicals and synthetic materials.However China would lose at most 5-6% of its ethylene production capacity even if U.S. ethane disappeared entirely. This is because you can also make ethylene with naphtha, a hydrocarbon mixture, which China has in abundance. 70% of China's ethylene production today relies on naphtha, vs only 8-10% for ethane.And more critically, China's newest petrochemical plants were deliberately built with flexible furnace technology specifically designed to switch between gas feeds (ethane) and liquid feeds (naphtha) to handle exactly this type of supply disruption.So basically, for these plants, handling the U.S.'s restriction of ethane exports is virtually as easy as flipping a switch.The damage to the U.S. is, however, far more severe as China is by far its biggest foreign customer of ethane: 45% of U.S. ethane exports go to China.Which means very concretely that the harm on U.S. producers is severe. With no other market able to absorb the volume previously shipped to China, ethane prices have collapsed and loaded tankers are literally sitting idle off the coast of Houston, unable to deliver their cargo.The strategic absurdity is even worse considering the fact that these export controls directly contradict the Trump administration's own stated goal of "energy dominance." Instead of projecting American energy strength, the controls force U.S. energy companies to sell their products at fire-sale prices or lose their production entirely.Worse still, the controls poison the well for future U.S. energy exports by introducing political risk into what was previously considered one of the only off-limit and reliable sector of trade with the U.S.It also of course contradict another key policy objective of Trump: reducing U.S. trade deficit, especially with China. It takes a special kind of genius to design a "retaliation" that destroys one of the few remaining sectors where America still exports massive volumes to China.All in all, the ethane export control episode perfectly illustrates the fundamental asymmetry in U.S.-China economic competition.When your "retaliation" consists of voluntarily destroying profitable export relationships while your adversary barely flinches, it's a clear sign that you're running out of viable options and grasping at desperate measures.
 
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