The goals were never realistic, but now Beijing has good reason to back away from its purchase commitments to Washington.
Energy trade was the centerpiece of U.S. President Donald Trump’s just-completed pact with China, seemingly matching soaring U.S. production of oil and natural gas with bottomless Chinese demand for fuel.
While it was always going to be a stretch to meet the ambitious Chinese purchase targets laid out in the agreement, the recent explosion of the coronavirus and the impact it has had on China’s economic growth have now made those grandiose energy visions completely unrealistic—just as Trump takes to the campaign trail to tout the deal’s benefits ahead of his reelection bid.
The outbreak of the novel coronavirus, which has infected tens of thousands of people and killed more than 1,300 in little more than a month, seemed to have peaked—until new diagnostic techniques this week showed that the virus had infected thousands more and killed hundreds more than previously thought.
And the uptick in the disease’s virulence has been matched by growing signs of its impact on China’s and the global economy: Cargo ships are piling up outside ports full of undelivered commodities; oil and petrochemical refineries are scaling back operations due to declining demand for their products; Chinese consumer spending is anemic; and supply chains worldwide are shuddering.
Air freight, a key indicator of global trade, seemed on the uptick after a dismal 2019, until it collapsed again in January, a potential harbinger of a broader slowdown in cross-border trade flows.The International Energy Agency just underscored the dramatic impact the virus is having: For the first time since the financial crisis a decade ago, the world’s demand for crude oil will decline in the first quarter of the year, led by a precipitous fall in oil demand in China, the world’s biggest oil importer.
The energy market impacts of the coronavirus will likely doom the $50 billion in additional oil and natural gas purchases that Trump was banking on as one of the few positive outcomes of his 18-month trade war with China, which resulted in slower growth in both economies, billions of dollars in new taxes for U.S. consumers, and lost markets for U.S. farmers and oil workers.
To be sure, the virus may have read the last rites to the hoped-for energy trade, but the deal was already impossibly ambitious even before the disease suddenly upended travel and business throughout the world’s second biggest economy at the beginning of the year.
Under the terms of the “phase one” deal signed last month, China agreed to purchase an additional $18.5 billion in energy products this year and $34 billion next year—above and beyond what it was already buying to power cars, planes, and factories. That would have required a 275 percent increase in Chinese energy purchase this year and a whopping 500 percent increase over 2017 levels next year.
(Similarly aggressive expectations for increased agriculture sales to China are even more difficult to meet, since American farmers wracked by bankruptcies and lost markets would have to massively increase their spring planting in the next few weeks, even as the coronavirus decimates China’s short-term growth prospects.)
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