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A Modest Proposal for Reducing U.S.-China Trade Tensions

U.S. trade negotiators are meeting with their Chinese counterparts in China this week to begin what may be a continuous round of trade talks. Here’s an idea that might help those negotiations come to a successful conclusion. 

Appearing in the Wall Street Journal in April, the former chairman of President Reagan’s Council of Economic Advisors, Martin Feldstein, writes, “Reducing the large U.S. bilateral trade deficit with China would not reduce America’s global trade imbalance, but it still would be a politically significant achievement. This could be achieved if China were to substantially shift its global purchase of natural gas toward American producers.” 

Feldstein has a good point. The only question is why limit those increased imports to natural gas? 

China imports a lot of energy products, and the U.S. exports a lot of them—and would like to export much more. 

China is the world’s second largest importer of liquefied natural gas (LNG)—second only to Japan and tied with South Korea.

The U.S. has helped meet that Chinese demand, exporting a range of oil and gas and related products to China.  How much do those U.S. exports play in the countries’ trade balances? According to the Census Bureau, the U.S. sold China nearly $9 billion in 2017.

Notice that U.S. crude oil exports exploded in 2016—when Congress ended the long-running crude oil export ban—and then increased by a multiple of 12 in 2017. 

Natural gas (which is almost entirely LNG in this context) grew from $10,000 in 2015 to $448.7 million in 2017. And it could grow even larger if China would agree to shift more of its energy supply chain to the U.S., as Feldstein suggests. 

President Trump has said he would like to reduce the Chinese-U.S. goods and services trade deficit by $100 billion a year. That’s an ambitious goal. 

But if China were to significantly increase its U.S. oil and gas imports over a multi-year timeline, it might serve to relax some of the trade war tensions that have emerged.