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American coal can fuel friendship with China

A haul truck with a 250-ton capacity carries

A haul truck with a 250-ton capacity carries coal from the Spring Creek strip mine near Decker, Mont., on Nov. 15, 2016. Credit: AP

After a series of increasingly provocative missile tests, the White House is seeking a new North Korea strategy to replace the failed approach of “strategic patience” employed by former President Barack Obama’s administration. But any plan that both punishes Kim Jong Un for his provocations and successfully deters him from further expanding his country’s nuclear program needs Beijing on board.

Xi Jinping’s visit to the United States - his first meeting with President Donald Trump - is a critical opportunity to hammer out a deal that can build on China’s own recent moves and use the joint economic power of the United States and China to bring Kim to his knees.

In February, China used the most lethal weapon it has in its economic arsenal against Pyongyang - a ban on importing North Korean coal. That stripped the North of its main source of licit income, as coal exports make up a full third of Pyongyang’s total export revenues.

All that North Korea now has left to be banned is overcoats and ginseng. China could also put restrictions on its own exports to North Korea, but because most of what it sends is fuel and food, Beijing is reluctant to do so, fearing a humanitarian catastrophe that would result in a refugee crisis on its doorstep. China’s biggest fear is a million starving North Koreans pouring over the Yalu River and the international attention this would draw.

It is not the first time China has suspended imports. With the adoption of U.N. Security Council Resolution 2270 last March, China banned its coal imports from the North, but shortly after it resumed them using a loophole in the resolution permitting imports if the proceeds go toward “88 transactions that are determined to be exclusively for livelihood purposes” - something very hard to disprove. This conditioned Kim to believe that such bans have no teeth.

Washington should disabuse him of this notion. Instead of criticizing China for inaction, the White House should embrace Beijing’s ban on coal and build around it a full strategy to cripple North Korea economically.

By taking China at its word instead of criticizing it for inaction, Trump can incorporate the ban into the framework of Sino-U.S. relations and make sure that the restrictions, currently limited to this year, are both lasting and enforceable. Trump and Xi should agree that unless North Korea dramatically alters its behavior, the ban will last for at least a decade. To ensure this, China should be asked to allocate North Korea’s former market share to the United States, the Saudi Arabia of coal. That would give U.S. companies the first right of refusal to replace North Korean coal with their own.

Other than hurting Pyongyang, such an agreement would give Trump two important benefits. First, it would help him offset some of the trade deficit with China - a top priority for his administration. Second, it would provide him an elegant way to fulfill his election pledge to revive America’s embattled coal industry, whose 76,000 workers made a critical difference in his victory. With U.S. natural gas prices so low, coal faces tough competition in the domestic market. However, in foreign markets where natural gas is priced much higher, America’s coal can compete and win.

But here is the rub. Coal comes in different forms, distinguishable primarily by their heat and carbon content. Most of America’s coal production is of lignite and bituminous, primarily used for power generation, but the coal North Korea offers to China is anthracite - a hard rock with the highest carbon content and lowest impurities used primarily for the manufacturing of steel and ceramics. Last year, North Korea supplied roughly 80 percent of China’s anthracite, at prices vastly cheaper than rivals like Russia and Australia.

Today, anthracite makes up only 2 percent of U.S. coal production, but the potential for expansion is significant. One of the world’s largest deposits of anthracite, roughly 7 billion short tons, equivalent to 300 years’ worth of North Korea’s current exports to China, is found in Pennsylvania. Additional deposits rest in Colorado and Utah.

Pitting America’s coal against North Korea’s would require some serious commitments by both Xi and Trump. Xi, who is looking for ways to shape his relationship with the new president, would have to carve a long-term share for American coal and agree to buy it at market price. That would cost China a substantial $1 billion a year or so compared with buying from North Korea - but that’s a price more than worth paying to rein in Pyongyang, which would be posed with the choice between an indefinite strangling of its economy and a curbing of its nuclear ambitions.

Trump, for his part, would have to facilitate the revival of the American anthracite industry by smoothing the regulatory path to the opening of abandoned mines and by lifting onerous Obama-era regulations on the coal industry that made coal mining in the United States unbearably difficult. With an administration friendly to coal, a new No. 2 at the Environmental Protection Agency who was until recently the lobbyist of the largest privately owned coal company in the United States, and with a Senate majority leader coming from the coal state of Kentucky, this should not be an uphill battle.

Seeing the lion’s share of his country’s revenues handed over to his archenemy for many years to come, Kim would face a new economic reality he could no longer ignore. No less important, it would create a commonality of purpose for China and the United States at a time of deeply strained relations. A deal built on economic warfare is worth trying - because beyond that, war against Pyongyang may be the only option left.

Luft is Co-director of the Institute for the Analysis of Global Security. Woolsey is former Director Central Intelligence and Co-founder, United States Energy Security Council.


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