President Donald Trump has been vocal in referring to China as an unfair rival to the U.S. on global markets. The media has been only too happy to report on every anti-China utterance; talk about a trade war, threats of levying hefty import taxes—all this has been a windfall for news outlets. But Trump has not yet made good on his threats. Will he ever? And what about other Asian economies, which also have a trade surplus with the U.S.?
China’s trade surplus with the U.S. is around US$350 billion, according to data from the International Monetary Fund as graphed by Bloomberg. The other countries in the region run a much lower surplus with the U.S., but that doesn’t mean they will stay out of Trump’s attention.
However, it would be pessimistic to expect a trade war with any of these countries, even China. After all, President Xi Jinping has already warned Trump that a trade war would have dire consequences for both sides. As would any trade war, with any country in the region.
There is another reason why Trump may have already decided – or may well decide eventually – that trade wars will get him nowhere. It’s a simple reason: Asian economies are the drivers of fossil fuel consumption, and the U.S. is an export hopeful.
Energy independence is high on Trump’s agenda. He has been making good on his promise to help the industry by signing several executive orders to that effect, greenlighting the Dakota Access and the Keystone Xl pipeline projects, and – his first law – removing the transparency rule for Big Oil. Related: Total Going On The Offensive
Yet he must have been made aware that the U.S. must keep importing at least some crude, regardless of how much domestic output grows. Refineries need both light and heavy blends, and U.S. oil is light. On the other hand, the decades-long veto on crude oil exports has been lifted, and there’s a whole global market out there—the Asian part of it hungry for oil and likely to become hungrier as it grows.
Already, U.S. energy companies are eyeing Asian markets – they received substantial, although unintended, help in this from OPEC, after the cartel agreed to cut production to support prices. This agreement meant they would have to cut their exports as well, clearing the way for U.S. exports.
For now, U.S. crude is going mostly to Canada and Europe, but this is about to change in all likelihood. Japan – also on the list of surplus-running Asian economies – is among the biggest consumers of crude oil and petroleum products, and one of the biggest importers. That’s an obvious market for more U.S. oil, especially since Trump doesn’t seem to hold any grudges against the current government there.
India is tipped as the next China in terms of oil demand. Trump and Modi have a friendly relationship, despite the U.S. trade deficit with the Asian nation. Everyone in oil is eyeing India as the biggest growth market for their products. There is no reason why U.S. oil should be any different. Related: Are Oil Markets Ignoring Demand?
South Korea is another major consumer of crude, most of it imported, some of it from the U.S. In fact, according to Platts, “South Korean buyers have been among the friendliest buyers reaching out to U.S. producers, since the U.S. lifted an effective ban on exports at the end of 2015.”
What’s more, one of Trump’s closest friends in the energy industry, Harold Hamm of Continental Resources, told Platts that South Korea is a top export destination for the company.
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In this context, when some Asian economies can relatively quickly turn into major export destinations for U.S. oil, trade wars are unlikely to take place. If U.S. shale boomers manage to cut their breakeven prices even further and take advantage of the current oversupply of tankers – the result of newbuilds coming on stream and old vessels idled because of the OPEC production cut – they could take a bite out of OPEC’s Asian markets.
By Irina Slav for Oilprice.com
