US ethane export controls to China backfire, hurting American producers more than target
The Trump administration’s decision to require export licences for ethane shipments to China has created a textbook example of failed economic statecraft, inflicting greater damage on US energy companies than Chinese competitors while undermining America’s reliability as a global supplier, according to a new analysis.
The Department of Commerce’s Bureau of Industry and Security issued notices on 3 June denying export licences for three ethane cargoes destined for China, targeting Enterprise Products Partners and effectively blocking what were previously unrestricted commodity shipments worth billions of dollars.
The controls have left loaded tankers sitting idle off the Houston coast, collapsed domestic ethane prices, and forced US producers to consider flaring off the byproduct or reducing natural gas production entirely, according to Philip Luck, director of the Economics Program at the Center for Strategic and International Studies.
Meanwhile, China’s petrochemical industry continues operating with minimal disruption by switching to alternative feedstocks, Luck wrote in a commentary published Monday as senior US and Chinese trade officials met in London for high-stakes negotiations.
‘These controls fail to clear even the lowest bar for an economic weapon,’ Luck argued. ‘If the goal is to weaponise trade, the weapon should inflict more damage on the target than the wielder.’
The policy miscalculation stems from fundamental misunderstanding of global petrochemical markets, according to the analysis. While China imported approximately 227,000 barrels per day of US ethane in 2024—nearly half of total US ethane exports—the commodity represents only 8-10% of China’s ethylene production feedstock.
China’s newest petrochemical plants were specifically designed with flexible furnace technology that can switch between ethane and naphtha feedstocks to handle supply disruptions. When US ethane supplies are cut off, Chinese facilities simply burn more naphtha at slightly higher costs rather than shutting down production.
‘Even if US ethane disappeared entirely tomorrow, China would lose at most 5-6% of its ethylene capacity in the short term,’ Luck noted, describing this as ‘strategic irrelevance’ disguised as national security policy.
The immediate impact has fallen heaviest on American companies. With no alternative markets able to absorb the volume, ethane prices have collapsed while domestic inventories build toward record levels. Loaded tankers are incurring roughly $2 million per day in losses while unable to deliver cargo without newly required export licences.
The controls also create cascading problems for the broader US energy sector, since ethane is a byproduct of natural gas production. Producers who cannot sell ethane must pay to store it, flare it off, or reduce natural gas extraction—directly contradicting the administration’s stated energy dominance agenda.
‘The irony is palpable,’ Luck wrote. ‘The Trump administration came to power promising US energy dominance, yet its own policies are now constraining domestic energy production and forcing US companies to sell their products at fire-sale prices.’
Beyond immediate economic damage, the export controls signal unreliability that could undermine long-term US competitiveness in global energy markets. International buyers choosing between US supplies and alternatives from Qatar, Russia or future suppliers must now factor in political risk from arbitrary Washington policy changes.
The timing particularly damages US interests as the country competes for market share in global liquefied natural gas markets, where buyer confidence and supply security are paramount. European allies seeking alternatives to Russian energy face similar concerns about political strings attached to US supplies.
The policy reveals deeper problems with US economic statecraft, according to Luck, who served in the Biden administration. Rather than conducting rigourous vulnerability assessments and cost-benefit analyses, policymakers appear to have imposed controls based on superficial trade flow data without understanding market dynamics or technological constraints.
‘Chinese analysts can observe that US policymakers were unaware of Chinese feedstock flexibility, failed to anticipate substitution possibilities, and imposed costs on US companies without generating meaningful Chinese constraints,’ Luck warned. ‘This information will inform Chinese preparations for future trade conflicts.’
The analysis recommends immediate reversal of the ethane controls, not as a concession to China but as ‘basic competence in service of US economic interests’. It calls for increased funding for economic analysis at trade agencies, which currently spend far more on enforcement than policy development.
As Treasury Secretary Scott Bessent and other senior officials conduct trade talks in London, they face the challenge of credibly threatening economic consequences while recent actions have demonstrated policy incompetence that strengthens rather than weakens adversaries.
‘In an era of genuine strategic competition, such self-inflicted wounds are too costly to bear, especially when they undermine the United States’ position at the negotiating table,’ Luck concluded.
https://www.csis.org/analysis/ethane-export-control-fiasco-what-london-trade-talks-cannot-fix
