China’s role in the coronavirus pandemic has appropriately garnered most of the headlines lately. But we shouldn’t lose focus on another important aspect of the U.S.-China relationship: Trade between our countries. It seems like a distant memory, but it was only four months ago that our governments announced a trade deal. Labeled Phase One, the agreement called for China to address intellectual property concerns, improve U.S. access to China’s financial services market and purchase an additional $200 billion of U.S. goods.
Despite continued sparring about the Chinese handling of the outbreak, it appears that trade negotiators have continued to coordinate closely. According to a May 7 statement from U.S. Trade Representative and Treasury, the parties “fully expect to meet their obligations under the agreement in a timely manner.” President Trump has also said that he expects China to follow through on its commitments and is not interested in reopening the deal.
That’s good news. Good for American businesses and consumers — and especially helpful for the U.S. energy sector.
Like many other parts of the economy, the energy sector has been hard hit by the pandemic. Demand has cratered. Oil prices even went negative for a day in April before settling into a range that is roughly half of where they started at the beginning of the year. Thousands of energy workers have lost their jobs, and analysts predict numerous bankruptcies.
The best antidote to this situation is greater demand for our energy production. In the Phase One agreement, China agreed to purchase at least $30.1 billion of liquefied natural gas, crude oil and other resources this year and at least $45.5 billion in 2021. Even recognizing the aggressive amounts and the economic slowdown associated with the pandemic, China should be able to move forward (through actual purchases or contracts for future purchases) to meet those levels.
Using Chinese government data, Reuters reported a rebound in China’s energy imports in the second quarter of the year and noted that some analysts predict that China’s fuel demand in the second quarter could be equal to the same period last year. There was also a recent report that 117 tankers, each capable of holding two million barrels of oil, are on their way to China.
But thus far it appears that China is not stepping up to buy more from the U.S. — and in fact, may be going in the other direction. The Energy Information Administration (EIA) reports that U.S. crude oil and petroleum product exports to China in January 2020 exports were down 33 percent from the year before. February 2020 was even more dramatic, with crude and petroleum exports to China cut in half. And while data for March and April has not been released, one can expect similar figures.
As China begins to ramp up its economy, the United States can help to meet their growing demand for energy. In the last 15 years, China went from importing barely three million barrels of crude oil to 10 million barrels a day. Meanwhile, EIA has projected China’s demand for natural gas could more than double over the next 20 years. And while the pandemic will undoubtedly have an impact on those projections, there’s no question that China’s overall demand – along with the demand of other developing countries – will grow significantly.
For the U.S., the better move is to capitalize on these market opportunities rather than trying to close ourselves off. Some U.S. lawmakers from oil producing states have pressed the Trump Administration to limit oil imports or to invoke national security tariffs. This approach is counterproductive, not only harming American consumers in the short term, but damaging the industry in the long run.
The ability to export around the world has helped the U.S. energy industry become a global powerhouse. During the last five years, U.S. crude exports have risen dramatically, going from 351,000 barrels per day to nearly three million barrels per day. And natural gas exports have gone from 1.51 trillion cubic feet to 4.65 trillion cubic feet.
China has committed to purchasing a large amount of U.S. energy production. President Trump and the trade negotiators are saying the right things about carrying through on those commitments. Let’s hope they’re right, and let’s keep pushing — as it will help the energy sector regain its footing.
Jeffrey Kupfer is a former acting deputy secretary of energy in the Bush administration and an adjunct professor of policy at Carnegie Mellon University’s Heinz College.