Unstoppable global economic transformation of the US-China trade war

ABU DHABI, United Arab Emirates – If you can hardly listen in the humid heat of this oil-rich kingdom, you can hear the rumblings of the deepest event for global energy markets and the global economy , not only for this year, but also for perhaps for this time:

This is the decoupling of the two largest economies in the world, that of China and the United States. The process seems as inescapable as its scale and overall impact remains incalculable.

This week's news that President Trump is delaying a two-week tariff increase of $ 250 billion worth of Chinese goods scheduled for October 1^th anniversary of the People's Republic of China, should not slow this trend, nor the exemption of China regarding the exemption of pork and soy from the new customs duties.

Delegates most aware of this year's World Energy Congress, who met here this week, continued to worry about the US-China trade war. This slowed growth and weighed on oil prices. At the same time, however, they focused on decoupling, a more important and generational event.

They found in the liquefied natural gas contracts that the United States, the fastest growing LNG exporter in the world, was not signing with the fastest growing importer in the world, China. In the recent Chinese deal, they recognized the acquisition of a stake in the Russian Arctic LNG 2 project by China National Petroleum Corp. (CNPC) and China National Offshore Oil Corp (CNOOC).

Delegates also heard of the decoupling of the only four LNG carriers that left the United States for China this year, according to the US Census Bureau, compared to 32 in 2018 and 23 in 2017.

LNG has radically transformed global gas markets in recent years, mainly due to significant demand in China and the rest of East and Southeast Asia. However, in a market where financing is based on long-term contracts, often even before the start of construction, US suppliers are already evaluating the potential costs, up to a recently unexpected date, of lost Chinese buyers.

There is also a decoupling of US oil shipments that were not delivered in China this year, even as the United States has become the world's largest oil and gas producer and net exporter. While US crude oil shipments to China reached half a million barrels a day in the summer of 2018, they averaged only one-third of the spring 2019 shipments.

Although delegates came here to focus on the energy markets, the consequences of decoupling began to affect almost every sector of the economy, from aviation to automobiles, from finance to farmers, from telephones portable semiconductors.

The "tit-to-tat" rates and the accompanying Trump tweets have fueled the markets all year long, but what traders have not even begun to incorporate is the one-year-old. the long-term and structural impact of this decoupling and its particular danger for individual enterprises.

Suspicious that US leaders want to fundamentally undermine their country's growth, the Chinese leaders are simply discouraging or preventing their companies from dealing with US partners. Meanwhile, chastised US companies are rethinking their supply chains and relocating their manufacturing operations to China.

If nothing interrupts this process, it will reverse 40 years of increased economic, financial and economic integration of the two countries. Businesses in other countries will not follow the American example, but will instead seek to take advantage of lost US opportunities among the 1.4 billion Chinese consumers.

Encouraged by his trade advisor, Peter Navarro, President Trump clearly explained his decoupling decision in a tweet published at the end of August: "Our large US companies are being urged to immediately start looking for an alternative to China, including bringing your business home and your products to the United States. "

President Trump's trade policies are leading to an economic slowdown that could jeopardize his re-election and, as a result, his renewed efforts to find a solution. However, it is unlikely that any major agreement will be able to reverse this downward trajectory in bilateral relations, even as China and the United States open the door to 13^th round of trade negotiations in October (no specific date has yet been set).

Beijing remains impatient to see the United States remove their tariffs. Trump administration negotiators continue to ask China to engage in structural changes in its activities, ranging from intellectual property protection to public subsidies.

The most profound change in recent weeks, however, may well be Beijing's decision to negotiate the best possible deal to embark on a systemic struggle of the time, whose Chinese officials fear it will not survive. long time to the Trump administration.

Addressing earlier this month to a training session for Communist Party cadres, Chinese President Xi Jinping dramatically underlined this mood change.

The summary of Xi's speech, published not to be missed at the official Xinhua news agency, does not mention the United States but focuses on "all kinds of struggles" that China will have to undertake to achieve the "dream" Chinese "of a" great national rejuvenation "by 2049, centenary of the People 's Republic of China.

Xi said: "For the risks or challenges that endanger the leaders of the Communist Party and the Chinese socialist system, for those who jeopardize the interests of China's sovereignty, security and development, for those who undermine the fundamental interests and principles of China, and for those who discourage China achieving a great national rejuvenation, we will wage a determined struggle against them as long as they are there, and we must win the battle. "

The South China Morning Post, in its report on the speech, said that the Chinese word for "struggle", douzheng, appeared nearly 60 times in the summary, highlighting the siege mentality that appears to have infiltrated Chinese leaders at the time. With respect to the United States.

"It's a fundamental political statement," Beijing political commentator Wu Qiang told the newspaper. "China will adopt an antagonistic position, position and approach to deal with the deterioration of Sino-US relations."

Xi took a considerable poetic license, recalling the film Tiger squatting Hidden Dragon in the way he asked communist cadres to remain alert to emerging dangers. He said that they should be able to "notice a deer pass by, look at the grass and leaves, see a tiger jump by listening to the wind in the pines and know the coming of autumn by spotting the changed color of a leaf of tree. "

In the less nuanced world of Trump tweets and global markets, it's time to tie in for what may be long and bumpy. It is perhaps also the time to move from President Trump's "art market" to what a Chinese expert, Li Mingjiang of Nanyang Technological University, calls " the art of struggle "of President Xi.

Frederick Kempe is a best-selling author, award-winning journalist and president and CEO of the Atlantic Council, one of the most influential think tanks in the United States on global affairs. He has worked for the Wall Street Journal for over 25 years as a foreign correspondent, deputy editor and senior editor of the European newspaper edition. His latest book – "Berlin 1961: Kennedy, Khrushchev and the Most Dangerous Place on Earth" – was a New York Times bestseller and was published in more than a dozen languages. Follow him on Twitter @FredKempe and sSubscribe here at inflection points, he examines every Saturday the main stories and trends of the past week.

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