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Former Dow Chemical boss Andrew Liveris has applauded Donald Trump for a reboot of the trading relationship, which could have long-term implications for Australian LNG exports to China.

Washington/Shanghai | The US-China trade deal will be worth all the economic and financial market pain of the past two years if it leads to further market-friendly concessions from Beijing, says a leading Australian business adviser to Donald Trump.

Mr Liveris, who once served as foreign co-chairman at the China Development Forum in Beijing, applauded Mr Trump for a long-overdue reboot of the trading relationship with the world’s second-biggest economy.

via apinews.org

Andrew Liveris previously served as executive chairman of Dow Chemical. Jimmy Higgins

“China for 30 years had basically taken advantage of the US market – rebalancing that so it’s more in equilibrium is necessary,” Darwin-born Mr Liveris told The Australian Financial Review.

His comments came on the eve of the signing early on Thursday (AEDT) of the so-called “phase one” trade deal by Mr Trump and China’s leading trade negotiator, Vice-Premier Liu He, after two years of tit-for-tat tariffs and souring relations between the two world powers.

While upbeat on the deal, Mr Liveris warned that Australian gas exporters should look to diversify markets if the pact triggers greater US shipments to China.


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He said this was unlikely to happen any time soon, because most LNG exporters had signed long-term contracts with China.

However, he added: “We’ll always be a producer. The question now is, can we be a seller if the US-China deal starts to trump us on LNG?”

Mr Trump has vowed the phase-one pact will be followed up with phase-two negotiations, despite widespread scepticism that anything will happen before the US election in November.

Zhu Feng, dean of the School of International Relations at Nanjing University, said this week he did not expect Beijing and Washington to reach a phase-two deal in 2020.

“The US will still try and force China to change its economic structure,” he said.  “China will make some concessions in this area, but the US should also make a similar level of concession.”

Peace treaty

Today’s deal was expected to include robust measures aimed at halting forced technology transfers, along with pledges for tougher judicial recourse, improved market access and, in a potential boon for Australian exporters, a shift to more science-based agricultural import regulations in China.

There were expected to be “headline” figures on how much China had agreed to buy from the US over two years across four industries, according to a report in the South China Morning Post and Politico. These included a total of $US200 billion ($290 billion) in US exports, made up of $US75 billion in manufactured goods, $US50 billion in energy, $US40 billion in agriculture and as much as $US40 billion in services.

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The US has said it would keep tariffs on more than $US300 billion of Chinese goods to ensure compliance by Beijing with the deal in coming months. That has left any chance of a full return to the calmer, pre-trade war era unlikely ahead of November’s presidential election, raising the possibility of further financial market jitters.

While Mr Trump was expected to use Wednesday’s signing ceremony to portray the deal as one of the greatest in US history, the administration has been busy preparing the ground to head off likely criticism that it fundamentally fails to alter China’s economic model, which US trade hawks regard as aggressively mercantilist and self-serving.

The US Trade Representative office, ’s top trade negotiating body, announced a day ahead of the signing that it had finished a meeting in Washington with Japanese and European Union counterparts at which all three agreed to push for changes on industrial subsidies at the World Trade Organisation.

The move means the administration can point to action on industrial subsidies, which it has accused China of abusing in the past, even if the trade deal avoids the topic altogether.

Australian fallout

Australian businesses will scour details of the accord for potential fallout. While expected mandated Chinese purchases of soybeans aren’t likely to be of any concern to Australian farmers, who don’t grow the commodity, they may well cheer pledges by Beijing to streamline rules on agricultural import regulations.

For instance, it is understood  China has agreed to put in place modern food biosecurity processes for imports, lift bans on poultry, and increase incoming pork volumes as well as beef. Experts have likened those elements of the deal to the kind of measures that often get included in more formal free trade accords.

While most of the headline focus will be on the mandated commodity purchases, the real benefits are in the removal of structural impediments, particularly on agriculture, said Clete Willems, a former Group of Seven and Group of 20 lead trade “Sherpa” for Mr Trump.

via apinews.org

Akin Group’s Clete Willems has worked with US President Donald Trump. AP

“There’s actually a lot of meat to this,” Mr Willems told the Financial Review. “What I’m most excited about are the structural provisions, not just the commodity purchases.”

“It’s something Australian companies, and companies around the world that have had problems with China, can see as jump-starting changes to global trade rules at the WTO.

“Of course you’ll get a lot of attention on the commodity purchases, but I think that’s more of a short-term sweetener on the more important structural aspects of the deal.”

Mr Willems said key parts of the agreement included “neutral language”, including on judicial recourse, that could eventually be transferred into the WTO system.

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There is now an expectation that the US administration will begin to reopen dialogue with countries like on potential WTO reform, as flagged by the Financial Review last month. This may include the so-called Appellate Body, which has been squeezed towards a near halt by the Trump administration’s refusal to approve replacements for retiring judges.

The signing ceremony – which followed announcements last month, after months of negotiations, of a breakthrough between Beijing and Washington – was expected to involve the public release of some elements of the agreement.

Structural chapters on enforcement were to be released, sources said, but there may be only “top line” details on commodity purchases.

“One thing they’ll keep confidential is the annex to the purchase agreement that details the specific commitments on commodities,” Mr Willems said. “What they’re telling people in the US is that they don’t want to move markets. When you get into the specifics there are only one or two companies that do that and that would move markets.”

China’s leaders, meanwhile, have been keen to stave off the threat of further tariffs at a time when the world’s second-largest economy is slowing. However,  Beijing has also made it clear it would not tolerate any attempts to change the way it manages its economy.

“The US should acknowledge and accept China as a county with a different approach and a different ideology. Don’t try to change China, accept China,” one senior Chinese government official, who did not want to be named, said this week.

US, China ‘drifting apart’

Mr Liveris, who headed Dow Chemical from 2004 until his retirement in 2017, became the head of Mr Trump’s American Manufacturing Council in 2016 and headed the company when it donated to the President’s inauguration.

Speaking from New York, Mr Liveris warned that despite the pending deal the world was still on a path in which the US and China drift apart.

“We are moving to a world that is increasingly – for the US – US-centric and, increasingly for China, China-centric,” he said.

“The new terms of trade will be part of those new orbits.”

He said Mr Trump’s actions against China were “overdue”.

“The terms of trade Trump-style have rebalanced leverage and I’m a fan of that.”

Asked whether in retrospect Mr Liveris felt Dow had suffered in its relationship with China, he said Beijing’s rules had left it vulnerable to technology theft.

“We were vulnerable because we had to be the minority in joint ventures and we were vulnerable to the fact there was no enforcement of any of those topics including IP theft,” he said.

“Again, we all knew that to play in China we had to play by their rules. And absent any framework that suggested otherwise, it was always going to be their rules. And we all played by it.

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“When Trumpworld arrived, and I was when that happened, it was almost unexpected that he would come in so strong … to try and recalibrate that.”

While many companies have suffered from the trade war – particularly the shares of those with trade-exposed businesses – it was worth the pain in the longer term.

“In my view, it will create better terms of trade over time.

“It was worth the tumult as long as … there’s a second term of engagement. In other words, there’s more. It’s not just this deal.”

LNG implications

Mr Liveris, who also sits on the board of resources contractor WorleyParsons, said one potential risk for Australia was that the China-US deal undermined the position of liquefied natural gas exporters by forcing Beijing to buy more of the product from China.

However, the need for US environmental approvals and development of LNG export facilities meant that could take five to 10 years, he said.

“The deals that were struck on the North West Shelf in particular and northern Australia gave us the lead position for a period of time,” he said.

“So I wouldn’t worry about that in the immediate term, but I would start looking for alternative markets to hedge my bet if I was in the LNG game in Australia.”

Analysts in China also backed up Mr Liveris’ suggestion there could be long-term implications for Australian LNG exports to China.

Joyce Liu, a natural gas senior analyst at commodity market consultancy SCI99, said although US imports of LNG to China would not surpass 10 per cent by 2021, they could pick up by 2025.

“China’s increasing LNG import from US will have limited impact on Australia’s LNG export to China in the near future,” she said.

“However, US LNG exports will see strong growth by around 2025 and it will bring a relative strong impact to Australia and Qatar.”

Ms Liu said while Australia’s share of China’s LNG market would fall to 30 per cent from 45 per cent currently, overall volumes would not decline because China’s demand for the commodity would continue to grow.

She predicted the US’s market share would grow to more than 10 per cent in 2025 from 0.5 per cent in 2019.

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Jacob Greber writes about American politics, economics and business from our Washington bureau. He was previously our economics correspondent based in Canberra. Connect with Jacob on Twitter. Email Jacob at [email protected]

Jacob Greber

Michael Smith is The Australian Financial Review’s China correspondent. Based in Shanghai, Michael has more than 20 years experience as a journalist. Connect with Michael on Twitter. Email Michael at [email protected]

Michael Smith

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