China is lining up retaliatory tariffs against the US to hit one of its most successful export industries in recent years: energy. Sales of US oil, gas and coal to China have been rising sharply, and the US energy sector has been running a bilateral trade surplus. But most of those exports, with the exception of liquefied natural gas, now face the prospect of a 25 per cent Chinese tariff, as part of a second wave of new duties threatened by the economy ministry at the end of last week. The impact is likely to erode US oil producers’ profitability.
Oil is a liquid global market, and crude that is shut out of China will be able to find buyers elsewhere. The issue will be the discounts that US oil exporters will have to accept to find those new customers. One executive at a commodities trading house said it was unclear when and how China’s tariffs on crude would take effect, and his company’s response remained “wait and see”. Aaron Padilla of the American Petroleum Institute, the industry group, said US companies were already being hurt by the escalating trade dispute.
The duties on US steel imports imposed by the administration in March have raised costs for energy companies, and the new tariffs on imports from China cover some products they buy, including parts for offshore facilities. Now a third blow is looming in the retaliatory tariffs from China. Mr Padilla said the API was talking to the administration to raise its concerns. “We want them to understand that the tariffs have a negative impact on the US oil and gas industry,” he said. “You can’t be promoting and maximising the production of energy while also imposing tariffs.”
China is the world’s largest oil importer, and US exports of crude have risen sharply since 2016, after Congress lifted restrictions on the shipments. After a slow start, China’s purchases averaged 358,000 barrels a day in the first three months of 2018, ranking it alongside Canada as a top destination for US exports, according to the Energy Information Administration.