Amid a steep correction in crude prices, China said on Wednesday that it would impose a 25-percent tariff on U.S. imports worth US$16 billion, including crude oil, diesel, cars, coal, and steel products, in retaliation to the U.S. list of US$16 billion worth of Chinese imports that will be taxed by U.S. authorities from August 23.
On Wednesday, the Office of the United States Trade Representative (USTR) released a list of around US$16 billion worth of imports from China that will be subject to a 25-percent additional tariff as part of the United States’ response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property, the office said.
“This second tranche of additional tariffs under Section 301 follows the first tranche of tariffs on approximately $34 billion of imports from China, which went into effect on July 6,” it added.
China didn’t waste time in retaliating, and said today that its tariffs on 333 U.S. products, including crude oil, would also take effect on August 23.
As the U.S.-China trade spat turns into a full-blown war with tariffs and retaliatory tariffs and threats of further tariffs, U.S. energy exports to China may suffer with Beijing now following through with its threat to slap tariffs on U.S. oil and oil product imports.
China has, in recent years, become a key export market for growing U.S. energy exports. In fact, China is America’s second-largest crude oil customer after Canada. Chinese imports of U.S. crude oil in May, for example, averaged 427,000 bpd, more than any other destination and surpassing Canada’s 289,000 bpd imports, EIA data shows. Related: China’s Oil Futures Jump To Record High
Due to the rising trade tension between China and the United States, the trading arm of Chinese state oil major Sinopec is said to have suspended imports of crude oil from the United States.
Earlier this month, China included for the first time liquefied natural gas (LNG) in its list of goods up for a potential 25-percent import tariff, should the United States impose additional tariffs on Chinese imports.
Last week’s Chinese threat to include LNG on a tariff list has already had Chinese LNG end-users and suppliers saying that they would likely deter spot procurement of U.S. LNG cargoes in the near term if the tariff comes into effect.
By Tsvetana Paraskova for Oilprice.com
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The worst thing for consumers is so called fair trade, which in fact means ship products and food overseas to the highest bidder, reducing supply at home and thereby increasing the price. Why do you think meat, metal, chemicals, oil, practically every construction product has doubled in price?
However, oil prices will soon recoup any losses as they realize that US tariffs against China while adverse in nature are not going to threaten the global economy and global trade. China could easily sell the goods it exports to the United States anywhere around the globe. Moreover, China’s thirst for oil will not be affected by the tariffs. China will continue to import oil in increasing quantities to keep its economy functioning.
While the tariffs are being portrayed by the Americans as a retaliation against what they describe as China’s manipulation of the value of the yuan and unfair Chinese trade practices, I have been arguing for a while that the imposition of tariffs on Chinese goods could be the first shots in the petro-yuan/petrodollar war of attrition. This could escalate into a full trade war between the two countries and a possible wider conflict between them.
The Tariffs are manifestations of the US deep worry about the petro-yuan undermining the petrodollar in a global oil market valued at $14 trillion and also undermining the US financial system.
In its battle of wills with the United States, China has two trump cards. The first is its holdings of estimated $1.300 trillion of American debt which if offloaded to the market could lead to an immediate devaluation of the US dollar. The other is China’s strategic partnership with Russia.
Other than the petro-yuan, what irritates the United States most is the Russian-Chinese strategic partnership. Russia and China hold the view that Washington’s alienation from both of them is reflected by the deeply rooted fear of losing hegemonic status as the “only indispensable superpower”.
A confident China buoyed by the success of its crude oil futures contract and an America enraged by the dollar's potential loss of its coveted reserve status make a toxic combination where some kind of miscalculation or accident is more likely. That is why the oil world is so volatile.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
World leaders are playing dirty games, countries who are not oil producers should consider investing back in offshore drilling.