U.S.-China Trade Talks in London: Ethane Export Controls and the Need for Better Economic Statecraft

Note: This article was updated on June 11 to reflect the outcomes of negotiations in London on June 10.

Over the last two days, senior U.S. and Chinese officials engaged in trade negotiations in London. Early Wednesday morning, Commerce Secretary Howard Lutnick announced an initial agreement reached by the two sides, centered not around tariffs but export controls. In recent years, both nations have increasingly wielded export controls as economic weapons, trying to exploit their respective dominance across different segments of global supply chains. Last week, as tensions escalated, the Trump administration began requiring export licenses for ethane shipments to China. These controls, which will now presumably be lifted as part of the London agreement, may seem like a tit-for-tat escalation, but they exemplify how not to deploy tools of economic statecraft.

On June 3, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security issued a notice of intent to deny export licenses for three ethane cargoes destined for China, targeting Enterprise Products Partners and signaling a broader crackdown on energy exports to the United States’ largest trading partner. The new licensing requirements have effectively blocked what were previously unrestricted commodity shipments, forcing major U.S. energy companies to halt billions of dollars in planned exports while loaded tankers sit idle off the coast of Houston, Texas.

The ethane controls illustrate significant challenges in recent U.S. trade policy: They inflict more damage on U.S. companies than Chinese competitors and undermine confidence in American supply reliability among allies. Rather than demonstrating U.S. resolve, these poorly conceived controls reveal a troubling pattern of assumption-based policymaking, seemingly devoid of rigorous analysis. These controls fail to clear even the lowest bar for an economic weapon. Beyond contradicting the administration’s own energy dominance agenda, they signal to allies that the United States cannot be trusted even in supposedly apolitical commodity markets. This episode demonstrates that forethought, analysis, and deliberate decisionmaking processes are critical to effective policy—the absence of which will encourage adversaries and worry partners for years to come.

China Shrugs, but Will Adjust

The most glaring failure of the ethane export controls is their inability to meaningfully damage Chinese petrochemical capacity. Despite rhetoric about national security, the numbers tell a sobering story of strategic irrelevance.

China imported approximately 227,000 barrels per day of U.S. ethane in 2024—a substantial volume representing nearly half of total U.S. ethane exports. At first glance, this might seem like significant leverage. But context matters. Ethane accounts for only 8–10 percent of China’s total ethylene production feedstock, with the vast majority coming from naphtha (70 percent) and liquified petroleum gas (15–20 percent). Even if U.S. ethane disappeared entirely tomorrow, China would lose at most 5–6 percent of its ethylene capacity in the short term.

More critically, China’s petrochemical infrastructure was built with exactly this kind of supply disruption in mind. The country’s newest crackers utilize flexible furnace technology—particularly Linde’s PyroCrack systems—which can switch between gas feeds (e.g., ethane) and liquid feeds (e.g., naphtha). This is not theoretical capability; it is engineered resilience designed to handle, among other things, geopolitical volatility.

When U.S. ethane supplies are cut off, Chinese plants do not shut down—they simply burn more naphtha. Yes, this increases costs, but production is expected to continue largely uninterrupted. What interruptions this requirement will cause can be resolved within a matter of months. For a country that has weathered many trade wars, technology sanctions, and supply chain disruptions over the past decade, absorbing higher feedstock costs is hardly the trump card that administration officials are said to have thought they were playing.

Given the ineffectiveness of U.S. actions, China needs to do little to respond immediately. But that does not mean they will not react strategically. Economic weapons become less effective with every use as competitors adapt and de-risk their supply chains. Today, China still has some petrochemical infrastructure that requires ethane and cannot easily switch feedstocks. If China decides to continue purchasing U.S. ethane after this episode, they will certainly engineer their supply chains to remove whatever small leverage the United States had in this trade.

Self-Inflicted Wounds

While China adjusts its feedstock mix at limited cost to its petrochemical industry, U.S. producers are facing more significant supply chain disruptions. Not only are these disruptions entirely of Washington’s own making, but they could have been anticipated by anyone with a basic understanding of ethane production.

With no other market able to absorb the volume, ethane prices have collapsed, domestic inventories are building, and loaded tankers are literally treading water off the coast of Houston, unable to deliver their cargo without the newly required export licenses. This represents roughly $2 million per day in lost export value—leaving other producers to partially fill the gap.

But the effect on prices and sales is just the beginning. Ethane is a byproduct of natural gas production. If producers cannot sell their ethane, they must pay to store it, flare it off (burning money), “reject” the ethane (keeping it in the natural gas stream, which poses problems for utilities and LNG exporters), or reduce natural gas production. With U.S. ethane inventories already near record levels and limits on flaring due to environmental concerns, this export ban may soon cause significant challenges for U.S. energy producers.

The Trump administration came to power promising U.S. energy dominance, yet its own policies are now constraining domestic energy production and forcing U.S. companies to sell their products at fire-sale prices. The ethane export controls represent a direct contradiction of stated policy goals, inflicting measurable harm on U.S. energy companies in service of imaginary national security benefits.

The Trust Deficit: Poisoning the Well

Beyond the immediate economic damage, the ethane export controls send a deeply troubling signal about the United States’ reliability as a supplier. Markets for energy and the countless number of chemical products that are derivates of U.S. fossil fuel production function on long-term contracts, massive infrastructure investments, and predictable regulatory frameworks. By retroactively imposing export licenses on previously unrestricted commodities, the United States has introduced a new element of political risk into what were considered among the most stable international trade relationships.

This matters enormously for U.S. competitiveness. When international buyers are choosing between U.S. ethane and alternatives from Qatar, Russia, or future suppliers, they now must factor in the possibility that Washington might simply cut off supplies for arbitrary political reasons.

Ethane is hardly a strategic commodity—it is primarily used to make plastics and chemicals with minimal military applications. If the United States is willing to weaponize ethane exports, what confidence can buyers have in U.S. supplies of LNG, crude oil, or other energy products?

The timing could hardly be worse. The United States is competing aggressively for market share in global LNG markets, where buyer confidence and long-term supply security are paramount. Countries including Japan, South Korea, and emerging Asian economies are making multibillion-dollar infrastructure investments based on assumptions about U.S. supply reliability. The ethane precedent suggests that these assumptions may be misplaced, potentially driving these buyers toward alternative suppliers.

European allies face a similar dilemma. Having been encouraged to reduce dependence on Russian energy supplies, they now must wonder whether U.S. alternatives come with their own political strings attached. The ethane controls may seem unrelated to European energy security, but they establish a pattern of behavior that undermines confidence in U.S. commitments across the board.

Strategic Own Goals

Perhaps the most damaging aspect of the ethane export controls is not their likely economic impact but what they reveal about U.S. strategic thinking—or the lack thereof. Good economic statecraft requires careful analysis of vulnerabilities, precise targeting, and realistic assessment of costs and benefits. The ethane controls fail on every count.

The vulnerability analysis was superficial at best. According to those with knowledge of this process, policymakers simply looked at aggregate trade flows showing substantial U.S. ethane exports to China and concluded this represented meaningful leverage. There is even evidence suggesting that since ethane was not a commodity that China chose to impose tariffs on, U.S. policymakers mistook this for a sign of a chokepoint and imposed controls based on that flawed assumption.

Even a cursory analysis would have uncovered the truth about China’s overall feedstock mix, alternative supply sources, and technological flexibility. Such an analysis would have revealed that China’s ethane dependence was neither deep nor irreversible.

 At the end of the day, it is unclear what analysis led to this decision. The controls impose immediate, and quantifiable costs on U.S. producers while generating speculative and minimal benefits in terms of constraining China. Any honest assessment would have concluded that the policy was likely to be counterproductive.

The implementation of these controls has also been less than ideal. Rather than providing clear guidelines and reasonable transition periods, the Department of Commerce issued “is informed” letters with virtually no advance notice. Companies with loaded vessels suddenly found their cargoes stranded, creating immediate financial losses and legal complications.

This kind of policy design and implementation does more than damage specific companies—it undermines the broader reputation of American institutions for competence and predictability. When foreign governments and companies assess the risks of doing business with the United States, they now must account for the possibility of arbitrary and poorly designed policies that can destroy value overnight.

The Broader Pattern: Policy Based on Assumptions, Not Analysis

The ethane export controls are unfortunately not an isolated incident but part of a broader pattern of trade policy missteps, with policy driven by faulty assumption instead of credible analysis. While the second Trump administration is turning this into an art form, having served in the Biden administration, I can attest to this not being a new problem or a partisan one. From hastily implemented technology sanctions that harm U.S. companies more than their targets to tariff policies that raise costs for American consumers while generating minimal foreign policy leverage, the United States has repeatedly demonstrated a concerning inability to design and implement effective economic statecraft.

Economic competition with China requires sophisticated, sustained, and strategically coherent policies. The Chinese system, for all its flaws, is capable of long-term planning and systematic implementation. Chinese policymakers study U.S. trade policies carefully, identify weaknesses and inconsistencies, and design responses that minimize damage while exploiting U.S. mistakes.

The ethane controls provide Beijing with valuable intelligence about Washington’s decisionmaking processes. Chinese analysts can observe that U.S. policymakers were unaware of Chinese feedstock flexibility, failed to anticipate substitution possibilities, and imposed costs on U.S. companies without generating meaningful Chinese constraints. This information will inform Chinese preparations for future trade conflicts, potentially making U.S. economic pressure even less effective over time.

The Path Forward: Learning from Failure

The ethane export control episode offers several important lessons for future trade policy.

1. Analysis Should Come First. Economic statecraft requires genuine expertise in the targeted sectors. Trade policies cannot be developed by political appointees with limited understanding of supply chains, technology constraints, and market dynamics. The United States needs to invest in building institutional capacity for economic analysis across the agencies tasked with deploying the tools of economic statecraft. 
   
   The current resource allocation tells the story. The Bureau of Industry and Security, which issued these controls, spends far more on export enforcement than on analysts to support policy development and refinement. The Trump administration’s request to double the bureau’s budget allocates virtually all new funding to enforcement, with no meaningful increase for analysis—a recipe for exactly the kind of policy failure witnessed with ethane.

2. Good Outcomes Come from Good Process. Any trade weapon should be stress tested rigorously before deployment. This means conducting serious vulnerability assessments, gaming out responses and counterresponses, and honestly evaluating whether the expected benefits justify the costs. An assessment should also include a substantial interagency deliberation process. By all accounts, these ethane controls were implemented without any such process or analysis. If such a process had taken place, any number of agencies, not least the Department of Energy, could have told Commerce how monumentally ill-advised this idea was.

3. Relationships Matter. The probable impact on relationships with allies and partners should be considered before undertaking major trade policy changes that affect global markets. To the chagrin of the rest of the interagency, this is where the State Department can prove quite helpful. The ethane controls were implemented unilaterally, without coordination with other major energy exporters or importers. This undermined their effectiveness while maximizing reputational damage to U.S. reliability.

4. Failing Fast Is an Option. Geoeconomic policy cannot be conducted like a tech startup, but if policymakers insist on moving fast and breaking things, they need to learn to fail fast, too. The ethane export controls are causing measurable harm to U.S. interests while failing to achieve their stated objectives. Continuing them represents the worst kind of startup thinking—confusing stubbornness with resolve, and mistaking persistence for strategy. In economic competition with China, the United States cannot afford policies that prioritize speed over effectiveness, or that treat U.S. economic interests as acceptable collateral damage in poorly planned “disruption.”

Conclusion

The conclusion of negotiations in London provides an opportunity to resolve the U.S. policy approach, but we must learn the lessons from past policy failures. As Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer sat down with Chinese Vice Premier He Lifeng in London, they carried the burden of the United States’ recent trade policy mismanagement. The ethane export controls represent everything wrong with contemporary U.S. economic statecraft: poor analysis, inadequate preparation, arbitrary implementation, and stubborn persistence in the face of obvious failure. 

Actions like these ethane controls make it more difficult for U.S. negotiators to credibly threaten economic consequences because they hurt U.S. companies more than Chinese competitors, undermine alliance relationships, and raise questions about the effectiveness of current U.S. economic statecraft.

The American people deserve better from their government than policies that inflict costs on domestic producers while generating no meaningful benefits. The ethane export controls should be lifted, not as a favor to China, but in service of U.S. economic interests. 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. 

Philip A. Luck is director of the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.