A Commodity Fix for Tariffs
A Commodity Deal Both Sides Can Sell as a Win
It’s 12 a.m. ET, April 11th. Rates are blowing out. Markets are going berserk.
I think the tariff issue could—and probably will—be resolved through a structured commodity agreement between the U.S. and China. Tech and IP talks are a shouting match, but commodities—think liquefied natural gas (LNG), soybeans, and oil—could quietly let both Beijing and D.C. strut out claiming victory. This kind of resolution has happened many times before. Just a hunch from my days working as an energy and tech trade economist.
Most of the United States’ top exports to China are commodities. Here’s a breakdown of key U.S. commodity exports to China in 2023, by value.
We’ve seen similar scenarios in the past where commodity agreements helped ease trade tensions. In the 1972 U.S.–Soviet grain deal, Moscow purchased 10 million tons of U.S. grain, alleviating Cold War strains and generating $1 billion in trade (equivalent to about $6 billion today). The 1990s U.S.–Mexico Sugar Accord resolved a sugar-corn syrup dispute by having the U.S. accept Mexican sugar while Mexico agreed to buy U.S. corn syrup, smoothing trade relations. More recently, the 2020 Phase One Trade Deal saw China commit to $50 billion in U.S. energy and agricultural purchases; while not fully realized, it demonstrated the potential of commodity-based agreements to advance trade objectives.
Commodities are the low-hanging fruit that keep trade breathing when everything else stalls.
Commodity Exports Have Flexibility
Commodities have a unique advantage in trade negotiations: they’re inherently flexible. They can be priced, structured, and delivered in many different ways. Among them, liquefied natural gas (LNG) is perhaps the most tactically valuable.
LNG trade is nimble. Spot cargoes can be rerouted in real time, and volumes can be dialed up or down. U.S. LNG exports to China could scale up to $3B–$9B (from ~$2B currently—though currently paused since March due to the trade war).
Both the U.S. and China already have the infrastructure in place—U.S. export terminals are expanding rapidly, while China has sufficient import facilities to handle increased volumes without major upgrades.
Long-term contracts can include flexible take-or-pay terms, and payments can even be split or front-loaded depending on financial and political goals.
These dynamics give both sides room to maneuver—and a way to build goodwill or create buffer zones without renegotiating more sensitive sectors like tech or IP.
Strategic Payoff for Both Sides
For Beijing: Energy diversification, cost savings, and political space to reduce dependency on Russia. China’s hooked on Russian energy—19% of its oil, 10% of its gas—but that’s a shaky lifeline. The Power of Siberia pipeline locks China into a 30-year gas deal with pricing that’s more Kremlin roulette than fair trade. When Russia annexed Crimea in 2014, China quietly ramped up imports from the Middle East.
U.S. commodities—LNG priced on transparent Henry Hub markets ($2–$3 per MMBtu base), soybeans from reliable Midwest fields—offer a safer bet. It’s a subtle pivot away from Moscow’s grip.
For D.C.: Soybean farmers in swing states and LNG workers in Texas get a boost—and rural voters notice. Plus, it’s a tangible win: “We made China buy American” sounds a lot better than “We’re still arguing about TikTok.”
The beauty of commodities? They’re adjustable. Prepayments or export credits can juice U.S. numbers fast—think a $10 billion headline cut to the deficit in 2025.
Tariffs don’t need a full rollback—just a trim (125% → 50% on U.S. goods, 84% → 40% on China’s end) to make it all pencil out. Both sides keep their tough-guy stance while the deal quietly hums in the background.
Most Likely Scenario: A Structured Commodity Agreement
The most realistic path forward in any U.S.–China “reset” isn’t a full-scale trade deal—it’s a targeted, commodity-centered agreement.
China could commit to increasing purchases of U.S. LNG, soybeans, and oil—either through long-term contracts or structured forward purchases.
Volume flexibility would be baked in, allowing China to adapt purchases based on market conditions without breaking the political narrative.
Financial engineering (e.g., prepayments or sovereign guarantees) could let the U.S. front-load exports in 2025–26, improving the headline trade balance even without a fundamental shift in production.
Spinning It for the Headlines
This deal’s a PR goldmine—both sides can crow without eating crow.
• Beijing: “We’ve locked in vital resources at favorable prices, outsmarted our suppliers, and strengthened China’s future. This is strategic brilliance.”
• D.C.: “We slashed the deficit, put American workers first, and showed China who’s boss. This is a deal for the heartland.”
Everyone gets a megaphone.
This structure works because it gives both sides what they want, offers them an off-ramp—and lets them claim victory in the trade dispute through headlines.
Thank you for coming to my TED Talk at 12 a.m.