President Donald Trump talks of buying Greenland, taking over Panama and incorporating Canada into the US. His supporter, Elon Musk, wants to colonise Mars. But the US has just ceded the most important piece of territory to China – the future.
Mr Trump’s first few days back in the Oval Office have brought a literal snowstorm and a figurative blizzard of executive orders, many relating to energy and climate. He withdrew the US from the Paris Agreement on climate change, for the second time.
In an interesting document, he declared a “national energy emergency”, defining “energy” as including all fossil fuels, biofuels, geothermal and hydroelectric power, uranium and critical minerals, but not wind, solar, batteries or hydrogen.
The US has become a fossil fuel superpower. It is by far the world’s biggest producer of petroleum, outstripping Russia and Saudi Arabia, has become the largest exporter on a gross basis of oil, and in 2023 it took the lead in exports of liquefied natural gas (LNG). Even in coal, it is the fourth biggest global exporter.
Snowstorms apart, its natural gas prices are still near historic lows and domestic oil prices are moderate. It’s hard to see how energy production is “far too inadequate to meet our Nation’s needs”, as the emergency order declares.
But the order does identify “a precariously inadequate and intermittent energy supply, and an increasingly unreliable grid” as the core problem, a presumed reference to the increasing contribution of wind and solar, and to power cuts that have hit states such as Texas in recent years.
Middle ground
Now, it should be recognised that these policies are partly a response to US environmentalism that has concentrated far too much on stopping fossil fuel projects, and even carbon capture, nuclear power, electricity grid upgrades and some renewable developments, instead of promoting low-carbon energy in all its forms.
The hand of Mr Trump’s nominee for energy secretary, Chris Wright, is pretty clear in the emergency order. In contrast to some candidates for top jobs, Mr Wright is clearly a knowledgeable professional, whose experience, mostly in the oil sector, also covers solar, geothermal and nuclear power. But both his mandate and inclination lie in boosting legacy energy output, rather than focusing on efficiency or emissions.
The emergency order has paused about $300 billion of green infrastructure spending allocated by the signature Inflation Reduction Act.
This includes billions of dollars to install electric vehicle charging stations. Mr Trump will likely want Congress to remove tax credits for drivers who buy EVs. His promised tariffs, of anywhere from 10 to 60 per cent on Chinese goods, and 25 per cent on Mexico and Canada, would drive up the cost of EVs and reduce competition for US car makers. Mr Trump has also rescinded the goal from former president Joe Biden for half of all vehicles sold in America in 2030 to be electric.
What happens next was ably summed up by The Simpsons. “Then we’ll go too far, and get corrupt and shiftless, and the Japanese will eat us alive,” says one car-maker from the cartoon. This refers to the rush of cars from Japan into the US market in the 1980s, which were cheaper, more reliable and had better fuel-economy than the petrol-guzzlers that Motown turned out.
US president at the time Ronald Reagan leant on Japan to curb its car exports and artificially make its currency more expensive. It did not help Detroit long term, as Chrysler and GM needed the government to bail them out in 2008.
The fears of Japan’s economy overtaking the US economy were, of course, wildly overblown, as its subsequent two lost decades showed. China, which has more realistic prospects of overshadowing its American rival, is not about to make the same mistake.
The consequences of the US energy about-turn will not be immediately visible. The US economy and energy sector will probably get a short-term boost from increased confidence in the oil and gas sector, and relaxation of regulation and permits for new projects. Higher LNG exports will bring down international gas prices and assist Europe.
However, tariffs on imports will raise the cost to consumers of oil and gas from Canada and Mexico and probably exclude most Chinese clean energy technologies entirely. The US had already missed the bus on solar and wind power, but president Biden’s measures had given hope of retaining a foothold and developing a domestic battery and EV industry beyond Tesla.
Co-operation with Europe, Japan, the GCC and other allies could have built an interlinked and internationally competitive green sector.
Now this looks like fantasy. China too will eat its clean energy competitors alive, unless Europe and others also cower behind high protective walls of tariffs and subsidies. US companies will seek special favours from Washington, and deliver more expensive and lower-quality products, that will slow the adoption of wind, solar, batteries and other breakthrough technologies at home.
Something else might bail out the US. No doubt its oil and gas industry will continue to perform impressively in shale and deepwater.
Its still very innovative tech sector may come up with some breakthroughs, aided by AI and its growing push into space and rocketry. This could come in new battery chemistries, geothermal, self-driving vehicles, synthetic life, nuclear fusion or an unexpected area. But as China’s new energy behemoth evolves further, it’s increasingly probable that future advances will come not in Silicon Valley but in Shenzhen.
More probably, what is in prospect is an America that has dirtier, more expensive and not more reliable energy. It will have abdicated a meaningful role in international climate diplomacy, leaving others – notably the EU and China – to set the rules. Carbon pricing and border tariffs will wall off imports of carbon-intensive US goods.
Mr Trump demands the EU buys more US oil and gas, or faces tariffs. In the short term, this may happen, certainly for gas. But in the longer term, the obvious response to such bullying, and the pandemic of American sanctions against real and imaginary enemies, is to refocus trade ties.
That could lead to a Balkanised international trade system, like that which contributed to the political and economic disasters of the 1930s. Or, it could involve Brussels and London choosing the lesser of two evils, and co-operating more with Beijing. If China plays its cards subtly, it has a great opportunity to expand into the unexplored terrain of the future.