Friends With China Is the Best Option, as China Has Already Won the Energy Transition Race

Last week, the IMF issued its global economic forecast and offered two outlooks – one based on the status quo and another meaningfully lower, based on an aggressive trade war with China and the West.
Neither Europe nor the US can afford an aggressive trade war with China, and, in our view, they should look for alternatives – this view is shared by Dragoman, with whom we spent much of the last week in Houston.
For energy transition, China has already won the race, not because of a desire to be clean, but because clean energy aligns closely with energy self-sufficiency – clean power and hydrogen, versus imported oil and gas.
The US and Europe should embrace the low costs in China, but bargain, insisting on some level of local Chinese manufacturing investment to bring them some degree of local manufacturing efficiency and jobs.
Otherwise, we look again at the bleak 3Q messaging in European chemicals, Dow’s search for “better owners”, more on chemical feedstock surpluses, hydrogen for transport, and the need for big balance sheets.

Exhibit 1: The IMF has some interesting and controversial predictions this time around.