Markets have been anticipating more trade talks this year between Washington and Beijing. However, it appears that the U.S. could be preparing to ask for even more from China before a formal deal can be reached, according to a New York Times report on Monday.
U.S. Trade Representative Robert Lighthizer has warned President Trump that additional tariffs on Chinese imports may be needed to get meaningful concessions in trade negotiations, the report said. Early last month the U.S. and China agreed to set a 90-day freeze on more tariffs as the two sides try to mend trade differences. They also set a self-imposed March 2 deadline. If a deal can’t be reached, the U.S. will likely increase existing tariffs on $200 bn worth of Chinese goods from 10 percent to 25 percent as well as impose duties on another $267 bn worth of Chinese goods. China would likely respond in a tit-for-tat manner again and also impose more duties on U.S. goods.
Lighthizer’s comments were immediately felt in global equity markets. European markets were down while U.S. stock futures also fell sharply. The New York Times report added that Lighthizer must negotiate with China it in a way that tilts the balance of power toward the U.S. Going forward, his hawkish approach will have significant ramifications for American companies, workers and consumers whose fortunes are increasingly tied to China.
A number of these companies, seemingly waiting on the edge of their seats, are U.S.-based firms trying to jump-start new liquefied natural gas (LNG) projects as part of the so-called second wave of U.S. LNG development. Many of these new U.S. LNG project proposals that are now being planned and/or receiving federal approval will have a difficult time reaching the all-important final investment decision (FID) needed to go forward without Chinese assistance. These projects not only need to sign long-term off-take agreements with Chinese entities but many of them, particularly newcomers not backed by more experienced oil and gas majors, will need Chinese financing to go ahead. Without Chinese aid, it’s likely that a significant number will fall through the cracks, and even jeopardize the U.S.’ ability to challenge Qatar and Australia as the global LNG leader next decade. Related: Oil Tanker Firms Scrap Most Ships In Three Decades
China, for its part, has placed a 10 percent tariff on U.S. LNG with the threat of increasing that figure in the future, resulting in China having to find alternate sources of the super-cooled fuel on the spot market. The downside for China is that it also needs U.S. sourced LNG as its insatiable gas demand expands amid Beijing’s mandate that gas makes up at least 10 percent of its power generation energy mix by 2020, with further earmarks set for 2030.
These new U.S. projects will mostly vie for LNG markets in the Asia-Pacific region, which currently accounts for 72 percent of all LNG demand with that amount projected to increase to 75 percent, amid demand from both China and South Asia, namely Pakistan, Bangladesh and India.
Hitting China hard
American tariffs have already made a negative impact on the Chinese economy. A Caxin report indicated on Monday that China’s manufacturing had an even worse December than expected. The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI), a private survey, fell to 49.7 in December from 50.2 in November. A reading above 50 indicates expansion, while a reading below that level signals contraction. In December, two separate measures for new orders and new export orders showed contraction, the Caixin report showed.
Lighthizer’s top deputy will meet with Chinese officials this week ahead of more planned high-level talks in February. He will push for even more substantive changes, including forcing China to end its practice of requiring American companies to hand over technology as a condition of doing business in the country.
By Tim Daiss for Oilprice.com
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