With China, Venezuela Crises, Trump Faces A Defining Month Of Presidency


President Trump holds the cards in a high-stakes game of poker that could lead to a new Cold War. © 2019 Bloomberg Finance LP© 2019 Bloomberg Finance LP

Here’s what I wrote in July of 2017:

Should Trump decide to take action [against Venezuela], it could include an embargo of U.S. imports of Venezuelan “heavy crude” oil and end U.S. exports of “light crude,” which is mixed with the South American and OPEC nation’s heavy crude.”

When I wrote that President Trump had the economic leverage to bring Venezuelan President Nicolas Maduro to his knees, there was something I didn’t foresee. I didn’t foresee how intertwined the Venezuela situation, already spiraling out of control at the time, would become with what would develop into the U.S.-China trade war.

Today, the once-prosperous nation of Venezuela is increasingly looking like ground zero in a new Cold War.

It is one pitting China, much of the Middle East — Venezuela is, remember, an original OPEC nation — and, to a lesser extent, Russia, against the United States and most of the Western Hemisphere, most of Europe and large swaths of Asia. There’s a great map being updated here.

On the sidelines, at least for the moment, are Saudi Arabia, Mexico and India as well as most of Africa.

Holding most of the cards in this high-stakes poker game is, not surprisingly, Trump.

There’s something else at play here. Opposition to the president on China and Venezuela is essentially nonexistent or, at the very least, largely muted. That’s in stark contrast to so much of what he does or says, or is said to have done, from Mexico and the proposed border wall to the Mueller investigation into Russian election interference and allegations of Trump campaign complicity.

Given his penchant for diplomatic pyrotechnics, February could well be a defining month in his presidency.

First, China and the United States are looking down the barrel of a March 1 deadline to find a way out of a trade war.

Even though Trump and Chinese President Xi Jinping agreed to extend it once, past the end of 2018, China, armed with a large, high-level delegation will begin meeting with its U.S. counterparts beginning today to find a path forward before the deadline.

It is a trade war that encompasses more than $250 billion in U.S. imports from China already subject to tariffs and facing the prospect of increased ones. It encompasses U.S. exports to China that are important to Trump’s constituencies, and presumably, his reelection, including soybeans, oil and motor vehicles. And, rest assured, protestations to the contrary, add to this combustible mix a high-powered young woman sitting in a Canadian jail cell, the CFO of the world’s second-largest cell-phone maker, Huawei, who happens to be the daughter of the CEO and is now facing the possibility of U.S. extradition on serious charges.

Second, there’s Venezuela. The United States announced Monday that it was going to stop paying Venezuela’s state-owned PDVSA for oil. Not exactly an embargo but it’s rubbing up against one, to be sure. The Treasury Department said it would hold any funds in escrow, presumably releasing them only if Maduro relinquishes the presidency, acquiescing to self-proclaimed interim President Juan Guaido and the demands of President Trump and numerous other nations. (Most European nations have not acknowledged Guaido as president, as has most of the Western Hemispheric nations, but are supporting his ascension.)

This rapidly escalating political crisis — it has been an escalating economic and humanitarian crisis for years — has the potential to deepen the South American nation’s bonds with China. How? First, while the United States only gets 6.4% of its imported oil from Venezuela, down from about 15% a decade ago, Venezuela is heavily reliant on the United States to buy its oil, desperate as it is for cash. So Venezuela needs a country that needs oil.

Enter China. Last June, Chinese purchases of U.S. oil topped $1 billion, a record. Then came Trump’s second and much larger round of tariffs on Chinese imports, increasing the total from $50 billion to $250 billion. In August, September and October, Chinese oil imports from the United States fell to zero. Through June, no nation had purchased more oil in 2018 from the United States, which has become one of the world’s larger exporters thanks to fracking and an Obama Administration change ending a four-decade restriction on those exports, other than Canada.

(A side note: The reason I only mention data through October is because of a cameo role in this story for the longest partial government shutdown in U.S. history: No U.S trade data has yet been released since that data, with annual data originally scheduled for release next week but certainly not coming. It might have proven helpful in the negotiations with China, for example, to know if the Chinese have resumed buying oil in November and December. It might have proven useful to see if U.S. soybean exports to China, once responsible for more than 50% of all U.S. exports, had continued to pick up.)

Where that leaves us, however is pretty clear. After the U.S. move against Venezuela, you have a nation desperate for cash looking for a country presumably highly motivated to restore access to oil, China.

The United States has much to gain, should China accede to U.S. wishes and should Venezuela return to a democratic path. But make no mistake, the stakes are high.

 



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