[EAI Special Report] Asia-Pacific Energy Cooperation Initiative: Deepening US-China Strategic Competition and the Future of the Asia-Pacific Region

[Editor's Note]

The strategic competition that began in earnest with the US-China trade war in 2018 has accelerated across various sectors since the COVID-19 pandemic in 2020. To study the changes that the rivalry between the two countries will bring to the Asia-Pacific region, EAI launched the research team for "China's Future Growth and the Construction of a New Civilization in the Asia-Pacific" in 2018 and has been operating the project. This report, as part of that project, addresses the potential emergence of vulnerabilities in China's energy supply and demand as its per capita GDP transitions from $10,000 to $20,000 between 2020 and 2035, and the US's preemptive offensive strategy against China's rise. Amidst the competition for hegemony between the US and China, it discusses alternatives for stakeholders, including South Korea, to prevent US-China energy conflicts and transition towards cooperation.

※ The following is an excerpt. Please refer to the attached file above for the full text.

I. Introduction

This study examines the potential for cooperation between the United States and China, focusing on the energy sector, amidst the deepening and multi-layered strategic competition between the two nations. Specifically, it focuses on the period between 2020 and 2035, when China's per capita GDP is expected to move from $10,000 to $20,000, to analyze the potential patterns of US-China conflict arising from surging energy demand in China and the possibilities for cooperation in the Asia-Pacific region.

More specific research questions are as follows: 1) If China's economy continues to grow and its energy demand surges, will an energy supply and demand crisis emerge in the Asia-Pacific (hereafter, AP) region? 2) Will the strategic competition between the US and China escalate beyond trade wars into conflict and confrontation in the energy sector? 3) Can the US-China relationship generate positive spillover effects in trade and technology sectors where mutually beneficial cooperation is possible? 4) What incentives exist to control the negative spillover effects of energy conflicts and establish an order of cooperation?

In response to these questions, this report posits that while China may face energy supply and demand vulnerabilities due to its economic growth and expanding energy consumption, the world is expected to maintain a state of energy oversupply until 2050, driven by the US shale revolution and development of unconventional resources, as well as China's 'energy revolution' strategy. Energy is highly interconnected with other sectors such as military affairs, territory, and trade, thus conflicts may arise due to political factors rather than supply shortages. Conflicts and confrontations in the US-China energy sector will be determined more by the US's preemptive strategy to contain China than by the internal supply and demand logic of the energy sector.

The trade interdependence between the US and China has been gradually decreasing since the 2008 financial crisis and has accelerated since the 2018 trade war, leading to the decoupling of the two economies. The US-China trade relationship will likely undergo phases of conflict and adjustment in the long term, making it difficult to provide momentum for increased energy trade and cooperation between the two countries. In the energy sector, the most effective US pressure strategy against China would be to exert pressure on oil transport routes to China. While the conflict and negative spillover effects of the US-China struggle for hegemony are substantial and widespread, paradoxically, the incentives for stakeholders to promote cooperation will contribute to moving towards a cooperative relationship.

It is highly probable that strategic competition between the US and China will intensify by around 2035. The future world order will undergo a phase of deconcentration, where the legitimacy of US hegemony weakens. With the current Trump administration and Xi Jinping government failing to exert global leadership, there is a need to create a new logic for US-China relations that prepares for the post-Trump and post-Xi eras.

US-China cooperation requires active criticism and participation from other countries, including those in Asia. Cooperation in areas with low competitiveness and high mutual interest, particularly the energy sector, could serve as a foundation for initial efforts. To explore incentives for establishing an order of Asia-Pacific energy cooperation, this study examines European cases and discusses whether the US can play a role similar to the European Union in the Indo-Pacific region in the future, and what role South Korea can play.

■ Contact and Editing: Juwon Seo, EAI Researcher

   Inquiries: 02 2277 1683 (ext. 206) I jwseo@eai.or.kr