China Taxing US Oil Exports Makes No Difference – Oil Is Fungible

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There are worrying things about the trade spats between Donald Trump and China. But the threat of Chinese tariffs upon US oil exports (or imports of US oil into China at least) aren’t such. Sure, the general idea of a trade war is an exercise in seeing who can impoverish their own populations first and fastest but we all know that anyway. Imposing tariffs upon crude oil though, that’s going to mean pretty much no difference to anything at all. For imposing preferential tariffs upon fungible goods makes pretty much no difference anyway. Perhaps a tiny addition to transport costs but other than that, not much.

Beijing’s retaliatory measures against US tariffs can include penalties on oil coming to China from America. A cut in Chinese purchases of US oil may benefit Iran’s sales.

No, not really.

China’s threat to impose duties on US oil imports will hit a business that has soared in the last two years, and which is now worth almost $1 billion per month.

In an escalating spat over the United States’ trade deficit with most of its major trading partners, including China, US President Donald Trump said last week he was pushing ahead with hefty tariffs on $50bn of Chinese imports, starting on July 6.

China said Friday it would retaliate by slapping duties on several American commodities, including oil.

No, not really.

The two things to understand are that oil is fungible and that very little goes unsold. Fungible just means that one barrel is pretty much like another. Some extracted from Saudi Arabia isn’t that different from that under the North Sea. The people in Singapore don’t care greatly which is which either. That not much goes unsold means that if that which was to be used in Singapore won’t be then it can be sent to Rotterdam instead. And because it is fungible no one cares all that much.

Sure, it’s not perfectly fungible but it is pretty much. And it’s not entirely lossless, given different transport costs.

But this does mean that China applying different import duties to US oil doesn’t make much difference to anyone at all. Obviously, US oil will no longer be imported into China. But that means that China will need to get some from elsewhere – why not Iran? But that Iranian oil would have gone somewhere before, now it won’t. And the US oil will go where the Iranian now isn’t.

Hey, maybe there will be more than just the one iteration of changes. But at the end of the game of pass the parcel about the same amount of oil will be produced in the same places they are now, sold to and used in the same places they are now. It’s just that the matched pairs won’t be the same, even as the overall effect is.

Differential tariffs upon fungible commodities mean very little indeed.

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Spike
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Spike

But Trump’s tendency to react to any foreign leader standing up to him by shooting a new hole in my foot is eventually going to cause bleeding. Tariffs are taxes, and we would have been outraged if Obama had gone beyond spending and signing treaties without the participation of Congress, to levying taxes. There is no public-policy purpose (nor especially a “national defense” purpose) to the government creating niche taxes on foreign competition to a specific product. Pussy Hat Democrats and Nevertrump Republicans should join forces and extinguish the executive power to unilaterally declare tariffs.

TD
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TD

if there is any hopeful outcome after eight years of Obama and now two of Trump is that perhaps everyone will finally be tired of the notion of a super powerful president setting the agenda and doing pretty much as he pleases. A layman’s reading of the Constitution, in any event, clearly states that agenda setting is supposed to be done by Congress. if they are stalemated, so be it. Doing nothing is not necessarily a bad thing. Things will happen at the state level instead. I did not vote for Trump, though I have friends and even family members… Read more »

Spike
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Spike

“Caging children”? Oh come now. “Separating children from their parents” was happening under Obama, it is natural given that the parents are going to be caged for breaking US law and the children are not going to be caged because they didn’t, and the current crop of children are often not children and the alleged parents don’t always know their “children’s” names. Democrats’ use of this Wag-the-Dog campaign, and Republicans’ response by scattering and retreating, suggests that Congress is not focused enough to retake control of trade policy from the President, as required by not just a layman’s reading of… Read more »

TD
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TD

So, don’t jail the parents unless they are smuggling drugs. Send them back into Mexico and let it deal with them. And strengthen the border. Life there has become rough on residents on the US side. The revulsion many are feeling is real, and that could damage the Republican’s chances in November, which have been looking up. That some of the “parents” may not know their “children'” names may be true in some cases but not all all. As my family is largely working class, with a scattering of college grads, I’d say that it was largely anger that drove… Read more »

Spike
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Spike

Yes, we are at risk. No one has “the last move” in a Trump/China game of Saving Face. It will depend on whether Kudlow is right that tariffs are a ploy rather than the desired result — or whether he can make it so.

Agree with treating each border-jumping case individually. This is not helped by Dems asking us to see border violations through children’s eyes and demanding blanket amnesty for “Dreamers.”

BniC
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BniC

Amazing how it’s all about Trump caging children…..no mention of anyone else having this policy

TD
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TD

Some other countries are very strict about illegal immigration, overstaying visas, etc. Nevertheless, the US and Mexico are unique in having such a long border, with much of it passing through harsh, barely populated territory, and between two countries with such disparate economies, cultures and standards of living. I’m hard pressed to think of a similar situation anywhere else in the world. Perhaps Finland and Russia? Not even then really. Of course they try to come here. It is in our interest to see Mexico become more affluent, and trying reduce US investment in manufacturing there doesn’t help that.

Spike
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Spike

There are two keys to really bad foreign policy: (1) The belief that foreigners are just like us; and (2) The attempt to make foreigners just like us. Agree that, if Mexico were more affluent (or less corrupt or more successful against organized crime), then the border would be less relevant (and trans-border commerce would be less advantageous). But we have no moral basis to dictate even libertarian domestic policies for Mexico — and they will fight any attempt, kicking and screaming. Agree that impediments on use of Mexican factories is not in America’s best interest, as eliminating those impediments… Read more »