China Snubs Australian Coal, Giving U.S. Coal Producers Breathing Space
Donald Trump tried to fire up the coal sector. But fierce market winds blew out any flames. Ironically, Trump’s departure has benefited U.S. coal producers — now that China has dumped Australian coal and it is getting U.S. supplies.
It is a nod to President Biden: China needs reliable trading partners that can feed its growth and that want to expand along with it. To that end, China drastically cut the tariffs that it had placed on American coal exports. That has helped it replace Australian supplies while it tries to normalize U.S. trade relations.
“China wants to eliminate or greatly reduce that coal tariff not only because of its fight with Australia but more importantly, to make an overture to the United States: China is ready and willing to sit down to discuss trade issues and economic ties,” says Eric Fang, president of the National Center for Sustainable Development, in an interview. “The reasons are political and economic: China is sending a message to Australia about its unacceptable behavior while it is also lessening tensions with the United States.”
In 2020, Australia’s prime minister alleged that China was impeding an investigation into the origins of the coronavirus. China then threatened that the relations between the two could be “beyond repair.” Those words are less inflammatory than the language used by Trump, who referred to the virus in racial terms. Interestingly, China’s ban on Australia’s coal is harsher than the tariffs it placed on the United States, which made U.S. coal prohibitively expensive.
In 2018, Trump started the tariff war. Both sides then went tit-for-tat until late 2019. That is when Trump raised the white flag and the two sides began a multi-layered truce. The general tenet of the initial agreement is that China will buy $200 billion worth of American goods and services over two years — a number pegged to a 2017 benchmark. In exchange for that, the United States will reduce some tariffs and postpone others. For its part, the Biden administration said it is reviewing the previous trade policy for its impact on workers and the climate crisis.
China is an economic powerhouse, comprising 12% of global trade. It has 400 million middle-class consumers. There is at least another 600 million people poised to join those ranks.
Bilateral commerce between the United States and China reached $600 billion before the trade war. China, for example, imported $254 million in liquefied natural gas, or LNG, from the United States in January 2018. During the Trump Administration, though, China stopped importing the fuel from this country. Nearly a third of the U.S. economy is tied to foreign trade, of which 5% had been linked to China before the trade war erupted. Apple, Boeing, Cummins, Philips, General Motors, Siemens, and Tesla have divisions there.
“I hope that the United States will now look at China in a much broader and systematic way instead of having a short-term view,” says Fang. “The entire country is now mobilized to address the carbon peak and carbon neutrality in every sector,” he adds, noting that China’s goal is to cut carbon-heavy fuels by 20% by 2025.
For its part, Australia has found new markets for its high-quality coal: Japan, South Korea, and Taiwan. But the animosity that now exists between China and Australia has helped redefine China-U.S. relations. Nevertheless, this country is still only supplying a pittance of what Australia had provided — 6-to-7 million tons before the embargo.
The door, though, is open to American coal producers. To boot, China’s need for high-grade coal has put a premium on that product, all compounded because of an economic recovery.
Moreover, China’s energy needs are vast. Australia may be out in the cold. But other nations stand ready to supply its energy products: China has vowed to be carbon neutral by 2060. So it must cut its fossil fuel usage and invest heavily in green technologies — products that Americans want to sell. Electric vehicles and battery storage, for example, are hot “commodities.”
President Biden understands the new paradigm. And China’s peace-offering fits with his goals of creating skilled jobs while also addressing climate change.
Most immediately, though, U.S. coal exports went from practically zero last October to 1.56 million tons in June. (China imported 28.4 million tons of coal that same month.) China is the world’s largest coal importer. And Pennsylvania-based Consol Energy said it is a beneficiary of healthier China-U.S. relations.
“On the export front, we have seen several very encouraging trends as the seaborne thermal coal markets (used for electricity) have steadily improved since the end of the third quarter of 2020,” Consol’s Chief Executive James Brock said on an earnings call. Argus Media senior analyst Lee Rou Urn told the South China Morning Post that the U.S. would still be shut out of Chinese coal markets if not for the Australian ban. But he says that the coking coal coming from the United States — coal used to make steel — “pales” when compared to Australia’s supplies.
China is both an economic competitor and a partner. Inflammatory language and continued insults are not the lynchpin of international relations. Open dialogue and free and fair trade are. While Australian coal is finding new markets, it may be a long-time coming before it returns to China. The United States has learned a similar lesson. But things are beginning to change — welcome news for coal producers but potentially more lucrative for the green energy sector.