What Type of Impact Would Trade War With China Have on U.S....

What Type of Impact Would Trade War With China Have on U.S. Coal Exports?

1435
1
SHARE

The U.S. Energy Information Administration (EIA) recently reported that United States exports of coal are expected to break an export level record set back in 1981. If the current pace continues, the U.S. is expected to export 133 million tons of coal in 2012.

The EIA doesn’t expect the party to last long, however. The world’s largest consumer of coal, China, has been experiencing a downturn of sorts in its own economy and partly for this reason; demand for American coal is expected to fall. Over the past ten years, China’s gross domestic product has been growing at a clip of 10% per year. China’s pace, albeit positive, has slowed down to 7.8% per year through the first half 2012.

Could national politics further compound a fall off in demand for American coal or further investment from the United States? As we get closer to Election Day, the political rhetoric toward China has intensified. For example, during his last debate with President Obama, Governor Romney stated that upon becoming president he would label China as a “currency manipulator”. China has often been accused of devaluing its currency in order to make its products cheaper for import by other countries.

As a net importer of coal, China depends primarily on regional suppliers within Asia. According to the EIA, Indonesia and Australia are the largest coal exporters to China with over 50% of the market share of imports in 2011. It appears that if reducing the supply of coal exports to China is a strategy a Romney Administration pursued, it would have very little if any impact on the China’s energy producing capacity.

A trade war could preclude market opportunities in China for the United States if U.S. investment were discouraged as a result of American unilateral retaliation. The Chinese are hungry for foreign investment. While the country has a lot of coal, its extraction and distribution systems are inefficient. China is facing higher costs for domestic coal; bottlenecks for transporting domestic coal to power plants; coking coal resource constraints; and environmental and safety concerns.

China, according to the EIA has become open to new foreign investment and for good reason. China wants to modernize its large scale coal producing plants while financing the introduction of new technologies. The country also seeks to encourage consolidation among its larger coal producing plants. A significant portion of China’s coal producing industry is made up of small local coal mines. These mines are inefficient and not effective in meeting consumer demand. Insufficient investment is the main drag on the success of these small plant operations.

Since China seeks foreign investment to help address these infrastructure concerns, and since the U.S. wants greater access to the Chinese market, would it make sense to engage in “currency manipulator” rhetoric when income and increased employment for American contractors and their employees may be on the line? A better approach may be to two-pronged approach that combines marketing and promotion of U.S. services and goods conducted by our U.S. Trade Representative and our U.S. Department of Commerce, along with sound monetary policy. While the USTR and Commerce work to negotiate removal of trade barriers, a Romney or Obama Administration should tone down the currency manipulation rhetoric and instead continue to argue that the likelihood of an appreciating Chinese currency may bring in more investors are to see more opportunities for a return on their investment.

So while the impact from China-bashing rhetoric on U.S. coal exports to China may be minimal, there may be a greater impact on investment in other coal related activity within China itself.

1 COMMENT

  1. […] What Type of Impact Would Trade War With China Have on US Coal Exports?Politic365The world's largest consumer of coal, China, has been experiencing a downturn of sorts in its own economy and partly for this reason; demand for American coal is expected to fall. Over the past ten years, China's gross domestic product has been growing at a …and more » […]

LEAVE A REPLY