SINGAPORE (Reuters) – China has pledged to buy more US goods to reduce America’s huge trade deficit and help avoid exacerbating a trade war between the world’s two biggest economies, with energy and commodities high on Washington’s list of products for sale.
The US trade war with China is “on hold” after the governments agreed to drop tariff threats and work on a wider agreement, US Treasury Secretary Steven Mnuchin said on Sunday. Washington is especially keen to sell more of the United States’ surging oil and gas production.
Yet infrastructure bottlenecks mean energy and commodity exports can grow only gradually, and only if US oil, gas and other goods remain cost attractive against global competition.
Morgan Stanley estimates it could take up to three years to increase Chinese purchases of US goods by $60 billion to $90 billion, with a rise in agricultural imports in the near term followed by energy.
Total US oil and gas exports to China in 2017 were worth $4.3 billion, based on average prices, a far cry from a deficit reduction target of $200 billion.
But US exports are rising, and China has spent $2 billion on US oil in the first quarter of 2018 alone.
Increased purchases of US oil will help China replace Iranian supplies, which are expected to fall as the United States re-imposes sanctions on Tehran.
“Buying US crude would help with the Iranian situation in … that these barrels from the US would provide additional supplies at a time when buyers will be expected to cut Iranian volumes,” said Michal Meidan of consultancy Energy Aspects.
China’s US oil import bill this year could rise to $9 billion to $11 billion with purchases rising to 300,000 to 400,000 barrels per day (bpd) in the second half of 2018, according to Energy Aspects.
That would still be only a fraction of China’s import needs of 9.6 million bpd in April, worth around $20 billion. And while US exports may grow somewhat, infrastructure bottlenecks for the time being hold back sales.
US oil export terminals are small by global standards and the biggest tankers – Very Large Crude Carriers (VLCCs) – don’t fit through the Panama Canal. Having to take the detour around Africa, they are at a cost disadvantage against producers from the Middle East, Africa and Europe.
Washington also wants the United States to export more liquefied natural gas (LNG) to China.
While LNG shipments have increased, there are only two US export facilities, both of which have largely contracted out their supplies. There are also restraints in China due to pipeline and terminal capacities.
US LNG exports to China could eventually surge if Chinese companies become partners in many of the US export projects that still seek financing.
China could direct its state-owned soybean crushers to buy more of America’s surplus oilseed, said Paul Burke, North Asia regional director for the US Soybean Export Council.
That would potentially add 14 million tonnes of imports worth $6 billion to this year’s trade bill, at the expense of major exporters, Brazil and Argentina.
