Politics Of Coal (as in Charcoal)

This is the first addendum to the topic of US-China trade skirmishes

It illustrates the difficulties encountered by China in having to deal with an American administration that carries heavy doses of conflicts of interest.  This email deals with one of them – coal.

Why Did Trump Talk About Reviving America’s Coal Mines?
If I were to tell you that Donald Trump and his yet-to-be-confirmed Commerce Secretary Wilbur Ross are scheming to sell coal to China, you’d probably think that it is either a joke or another conspiracy theory.  According to sources at this end, it is apparently no joke.  Whether it is a conspiracy is a matter of opinion.  When this will come up in the course of discussions, or be raised as a surprise move by the Trump team, is anybody’s guess at the moment.

The idea is to try to extort China into buying coal from US mining companies (many of which are in and out of bankruptcy or imminently so) as one part of the “deal” to avoid the US administration adopting more severe punitive trade and currency measures against China.

The background to the story, however, involves Wilbur Ross, who is a veteran vulture investor in coal mining companies.  Without going into all the transactional details, I would point out that it is well-known in the distressed banking circle that Ross was a controversial investor in financially-strapped coal-mining companies.  He restructured their debts, laid off workers, and consolidated them into ICG in 2004.  In 2011, he succeeded in selling ICG to Arch Coal Inc which later ended up in bankruptcy, once again becoming a potentially target for the vulture investors.  There are other companies like that in the coal-production and coal-burning utilities industry.

Imagine the impact of an announcement of a major deal involving China importing coal from America.  All of a sudden, these companies that are worth nothing could potentially be worth billions.  Wilbur Ross’ recent history of involvement in the industry will at least give the appearance of immense conflict-of-interest.

In Defiance Of The Spirit Of The Paris Accord
From an environmentalist point of view, and against the backdrop of the Paris Agreement on climate change, this “transaction” contemplated by the Trump administration is cynical and polluting (no pun intended).  It took a Herculean effort on both the US and Chinese sides to achieve a groundbreaking agreement on dealing with the world’s environmental issues.  This was to have been Obama’s most enduring and historic legacy, and demonstrated the good that can be accomplished through US-China joint leadership.  China wants to reduce its heavy dependence on coal-firing energy plants and steel manufacturers, in order to meet CO2 emission standards pledged under the Paris Agreement.  But instead it is faced with this kind of a proposition from the new American administration.

Trump had promised to tear up the Paris Agreement.  He appointed Scott Pruitt as the head of the US Environmental Protection Agency, who had professed that there is no climate change. So any regulatory obstacle to selling coal to China is unlikely to exist under his EPA.  That is, if China agrees to buy.

China In A Quandary?
China is a realist and a pragmatist.  It can give consideration to the deal after analysing the numbers, causes and effects, and evaluating alternatives and extraneous variables.  A seemingly bad thing can be turned into a good thing, if the numbers make sense and done with proper countervailing measures and factors.  However, up against a character like Trump, China should be far more concerned about the serious consequences of rewarding him for bad behavior.

I doubt the US companies’ export price for coal can be competitive, unless they use non-union labor and cut corners with environmental measures (which Wilber’s ICG was accused of).  Above all, I doubt China would want to send the wrong signal to the world about its environmental resolve (something I know Xi Jingping is very committed about).

By now, people in Beijing have combed through Donald Trump’s “books” and know him, well, like a book.  To run a country’s foreign policy like a business is one thing.  To try to extort a major power like China for private gains is, let’s say, an interesting novelty.

-doublewood

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