Streetwise Professor

If Trump has a signature policy issue, it is promoting US energy to achieve what he calls “energy dominance.” The leading edge of this initiative is the promotion of LNG. Immediately prior to his appearance at the G20 Summit (where ironically he will be tediously hectored on trade by the increasing insufferable Angela Merkel), he will speak Thursday at the “Three Seas Summit” in Poland, where he will tout American LNG exports as both an economic and security fillip to Europe, and in particular eastern Europe.

“I think the United States can show itself as a benevolent country by exporting energy and by helping countries that don’t have adequate supplies become more self-sufficient and less dependent and less threatened,” he said.

This strikes at the foundation of Putin’s economic and geopolitical strategy. Export revenues from gas and oil keep his country afloat and his cronies flush. He uses gas in particular as a knout to bludgeon recalcitrant eastern Europeans (Ukraine in particular) and as a lever to exercise influence in western Europe, Germany in particular.

Gazprom routinely sniffs that LNG is more costly than Russian gas, and that LNG will not appreciable erode its market share. That’s true, but illustrates perfectly the limitations of market share as a measure of economic impact. The increased availability of LNG, particularly from the US, increases substantially the elasticity of supply into Europe. This, in turn, substantially increases the elasticity of demand. As the low cost producer (pipeline gas being cheaper), Russia/Gazprom will continue to be the source of the bulk of the methane molecules burned in Europe, but this increased elasticity of demand will reduce Gazprom’s pricing power and hence its revenues.

Furthermore, the effect on short-run elasticities will be particularly acute. Pre-LNG, there were few sources of additional supply available in a period of days or weeks that could substitute for Russian gas cutoff during some geopolitical power play. With LNG, the threat of shutting off the gas has lost much of its sting: especially as LNG evolves towards a traded market, supplies can swing quickly to offset any regional supply disruption, including one engineered by Putin for political purposes. So LNG arguably reduces Putin’s political leverage even more than it reduces his economic leverage. This is particularly true given complementary European policy changes that permit the flow of gas to regions not serviced by LNG directly.

Trump is getting some pushback from domestic interests in the US (notably the chemical industry) because greater exports would support prices and deprive these industries of the cheap fuel and feedstock that has powered their growth (something totally unpredictable a decade ago, when the demise of the US petrochemical industry was a real possibility). But (a) Trump seems totally committed to his pro-export course, and (b) complementary efforts to reduce restrictions on supply will mitigate the price impact. So I expect the opposition of the likes of the Industrial Energy Consumers of America to be little more than a speed bump in his race to promoting energy exports.

This all reveals Trump for the mercantilist he is: imports bad, exports good. This is economically illiterate and incoherent, but it’s Trump trade policy in a nutshell. Economic coherence aside, however, Donald Trump, LNG Impressario totally demolishes the Putin puppet narrative. Not that you’d notice–the hysteria continues unabated, because reality doesn’t matter to the soi disant reality-based community.

Here we have Trump devoting the bulk of his non-Twitter-directed energies (and he is high energy!) to promoting an economic policy that hits Putin at his most vulnerable spot, economically and geopolitically. Whatever his Russia-related rhetoric, pace Orwell, he is objectively anti-Putin.

Not that this causes neo-McCarthyites even to experience cognitive dissonance, let alone to engage in a serious re-evaluation. To them, Trump is literally a Kremlin operative in Putin’s thrall. And nothing–not even Trump venturing to the heart of the area Putin and his ilk believe to be in Russia’s sphere of influence and loudly (very loudly) proclaiming that he is offering American gas to free Europe from its energy thralldom–will divert them from their non-stop narrative.

As an aside, I do Joseph McCarthy a grave disservice by comparing today’s mainstream media, the Democratic Party, Neocons, and large swathes of the Republican establishment to him. There was actually a far more substantial factual basis for his paranoia than there is for that of the anti-Trump brigades.

There is an irony here, though. I have often sneered at Putin (and when he was president, Medvedev), for acting like a glorified Secretary of Commerce, going around being the pitchman for Russian economic interests, in energy in particular. Stylistically, Trump is doing somewhat the same. But substantively, in Making American Energy (LNG particularly) Great, Trump is giving Putin a good swift kick in the stones.

Not that the promoters of the New Red Scare are paying the slightest heed. Which demonstrates that theirs is a completely partisan and grotesquely intellectually dishonest campaign.