Tom Shepstone
Natural Gas NOW

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President Trump wants better deals with China but our US shale revolution is already producing win-win deals for both countries as they make stuff here now.

President Trump is engendering a lot of trade discussion these days, especially with regard to Mexico and China. The two countries have been clearly taking advantage of us in some respects, but trade wars aren’t the answer either. I hope and suspect Trump is using his tough trade talk as opening salvos in new bilateral trade negotiations with both countries. If so, the results could be very good, but a real trade war would be disastrous as KJ Rodgers explained a couple of days ago here. Fortunately, no war is necessary because we’re already bringing China’s money here due to the shale revolution.

Chinese auto supplier Fuyao Glass is expanding its U.S. production at this site as seen in this picture taken in Plymouth, Michigan near Detroit, Michigan, U.S. October 7, 2016. Read story at REUTERS/Joseph White

One of our regular readers sent me a very intriguing article the other day from Who.What.Why. It’s all about Chinese manufacturers coming to America to invest in manufacturing here, rather than in China, as they help supply US markets with goods. Here’s the part that caught our reader’s attention and mine:

Taxes on manufacturing, for example, can be up to 35% higher in China than in the US, Cho Tak Wong, founder and chairman of China’s largest auto glass manufacturer Fuyao Glass, told the Chinese business publication Yicai in December.

The interview attracted a lot of attention in China, with many business leaders echoing his sentiments. In particular, they complained about the burden of taxation and brought up other cost issues that are making the lives of Chinese manufacturers harder.

Cho noted that all of these reasons now make it more profitable for his company to produce goods in the US instead of manufacturing them in China, and exporting them. And he has put his money where his mouth is.

Having invested about $750 million in the US since 2014, including launching two factories in Illinois and Ohio, Fuyao Glass plans to open a third American plant in Michigan this year, bringing its investment in the US to a total of $1 billion, Reuters reported.

Speaking of other costs of his US factories, Cho said in the video, “land is basically free, the price of electricity is half of that in China, and the natural gas price is only one-fifth.”

For products sold in the US, Cho estimated that the profit is 10% higher by manufacturing there instead of exporting the same goods from China. He listed taxes, utilities and tariffs as factors contributing to his calculation.

These are some amazing facts and they all bode well for the US if we use our leverage properly. Our US shale revolution has provided major advantages that are making China come to us. Notice the points made about electricity costs and natural gas prices. Both attractions are directly attributable to the shale revolution – fracking combined with horizontal drilling.

Average US electricity prices per EIA, adjusted for inflation

Moreover, although China has more shale from which to pull gas, it is the US that has pioneered the technology, bringing natural gas prices down to a point where even electricity is getting relatively cheaper unless you live in pig-headed politically correct places such as New York. It is the shale revolution that is now helping to bring China’s money here, where it’s creating US jobs to supply US consumers. What a beautiful thing!