Chinese energy deal still moving forward despite Trump tariffs

CHARLESTON — Even with President Donald Trump firing back in the trade war with China, the West Virginia official working hands-on with the Chinese on a proposed investment in the state’s natural gas industry still believes the deal will come through.

The Trump administration announced new tariffs on $200 billion worth of Chinese goods July 3, including coal, steel, and aluminum and various manufactured goods. U.S. Trade Representative Robert Lighthizer said the United States would use its tariff power under Section 301 of the Trade Act of 1974.

“As a result of China’s retaliation and failure to change its practices, the president has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion worth of Chinese imports,” Lighthizer said. “This is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies.”

This action comes after China retaliated against the U.S. after the USTR sought public comment June 20 on two proposed tariffs: the first on $34 billion worth of Chinese goods, and the second on an additional $16 billion worth of Chinese goods.

According to the U.S. Census Bureau, West Virginia exported approximately $7.1 billion worth of goods in 2017. Of that number, $3.2 billion was in metallurgical coal used for making steel. China was West Virginia’s third largest trading partner, with China importing more than $535 million in state goods — a 15 percent increase from 2016.

West Virginia’s export relationship with China isn’t the only thing on the line. In November 2017, Gov. Jim Justice announced the state had entered into an agreement with China Energy Investment Corp. The investment, valued at $83.7 billion, involved China Energy making numerous investments in marcellus shale natural gas production and downstream industries, such as chemical manufacturing interests.

“We’re doing what I truly believe is the right thing,” Justice said at a press conference announcing the deal. “It gives us hope, it gives us jobs, it gives us real life.”

The deal was part of a $250 billion trade deal negotiated between China and the U.S. Department of Commerce. Former West Virginia Commerce Secretary Woody Thrasher traveled to China twice to secure the $83.7 billion memorandum of understanding with China Energy officials. He resigned in June due to problems with how the Commerce Department handled a post-flood relief program and questions over the role of a natural gas storage hub CEO in discussions with the Chinese.

During the same press conference, Thrasher said the deal came about because China Energy officials wanted to play a role in leveling out the trade imbalance that was an issue for the Trump administration.

“I sat down with the governor and we went over that whole series of proposed projects and the unbelievable dollar value that would be achieved with those projects, and he sent me off to China to do what I could to shore up that deal,” Thrasher said.

Fast-forward nine months later, and the same officials with China Energy canceled a trip to West Virginia scheduled the weekend of June 15. But Dr. Brian Anderson, the director of the West Virginia University Energy Institute, says another visit is being organized.

“In terms of the development process, we continue to move forward,” Anderson said. “We’re even working on the next potential visits by officials and team members, so it’s not just the high-level executives, but development teams.”

Anderson, part of the team the state Department of Commerce put together to help make the memorandum of understanding with China Energy a reality, sees the recent round of tariffs as a small speed bump and not a roadblock.

“The new round of tariffs doesn’t really change anything,” Anderson said. “Because of the nature of what they’re trying to build in Appalachia, and West Virginia specifically, these manufacturing facilities will be manufacturing goods in the United States. They wouldn’t be subject to any import tariffs at all.”

Likening it to the cracker plant construction by Royal Dutch Shell, a company headquartered in the Netherlands, Anderson said foreign companies might use the tariffs as an excuse to build permanent manufacturing facilities within U.S. borders.

But Anderson does have one concern about the tariffs.

“The only tariff itself that does apply to building and constructing manufacturing facilities is the steel tariff,” Anderson said. “It could change the price of capital improvements for constructing facilities.”

While Anderson has a positive outlook on the China Energy investment, that doesn’t mean he’s not watching the trade rhetoric between China and Washington with no concerns.

“The overall tenor of a potential trade war and the fact that China Energy is partially a state-owned enterprise, from a political business decision that is the one factor that has to be navigated,” Anderson said.

Another hiccup, turmoil at the state Commerce Department, also isn’t an issue for Anderson. Thrasher, the commerce secretary who led the effort to recruit China Energy, resigned in the wake of controversies over the RISE West Virginia flood disaster recovery program. Another Thrasher-led program he came under fire for, Excel, embedded state business leaders at the Commerce Department.

One of those business leaders, Steve Hedrick, was allowed by the Commerce Department to be part of discussions with China Energy and even fly on state aircraft. Hedrick is the CEO of Appalachia Development Group.

The Commerce Department has an acting secretary in Clayton Burch. Commerce’s International Division also has survived unscathed by the changes at its parent agency. Anderson said none of the changes at Commerce have affected negotiations with China Energy.

“All of the structure is still there, and the development is moving forward,” Anderson said. “While it’s good to have that direct point of contact with the secretary of commerce who works directly with the governor, the China Energy folks understand. Since we’ve started this process they’ve had a new chairman and a new CEO. It’s something that happens in the course of business.”

Rod Rogers, district director for U.S. Rep. David McKinley, R-W.Va., said the congressman’s office remains in contact with the parties on the agreement, when asked by a resident if the project was “in jeopardy” during a gathering of citizens and elected officials in Parkersburg on Friday.

“I would not use the word ‘jeopardy,'” Rogers said. “There (are) some issues,” he continued, adding that with any worthwhile project there will always be issues to navigate.