Donald Trump has threatened to continue escalating the United States’ trade war with China by introducing another round of tariffs on exports from the world’s second-largest economy. This time the Trump administration would target goods that had not yet been affected by the now more-than yearlong trade war. The U.S. warns that it could hit $300 billion worth of these Chinese goods with a whopping 25% tariff, potentially setting the United States up for retaliation and ringing economists’ alarm bells around the country.
"China's expected retaliation against US crude oil, refined products, and LNG would disadvantage US exports and could cascade into US domestic production," said the American Petroleum Institute’s senior adviser for international policy Aaron Padilla. His written comments went on to say that the "U.S. market share in China for LNG and other petroleum products may be difficult to restore with China turning to alternative suppliers," he added.
This week the Padilla’s organization the American Petroleum Institute, the country’s single-biggest trade association for the oil and gas industry, used its platform in Tuesday’s U.S. Trade Representative hearings on the Section 301 tariffs to warn of the great threat that the increasing trade war with China poses to their industry, as well as to the entire economy of the U.S. as a whole.
While China, one of the world’s biggest crude oil importers, has not yet imposed tariffs on U.S. crude, it has already put the squeeze on U.S. oil markets by sharply decreasing its importation rates of light sweet and medium sour U.S. crude. According to reporting from S&P Global Platts, Chinese imports have taken a nosedive from 316,771 barrels per day in the first quarter of 2018 to just 6,991 barrels per day in the first quarter of this year. “US crude flows to China recovered to 116,750 b/d in April, the latest GAC data showed, but only a few Chinese refineries have booked US crude cargoes for May-July delivery, according to traders and analysts with knowledge of the matter,” says S&P Global Platts. Related: Saudi Aramco Says It's Ready For Strait Of Hormuz Disruption
In light of the deteriorating crude trade between the U.S. and China, the API argued that “the latest U.S. tariffs threatened against Chinese imports would hamper US energy exports, hurt domestic energy security, and push China to import more oil and gas from countries like Iran and Russia,” summarizes S&P Global Platts.
There is a reason, however, why China has been reluctant to slap any tariffs on U.S. crude oil, even as they’ve swiftly levied tariffs on a wide variety of U.S. products, including liquefied natural gas, cotton, soybeans, machinery, grains, and aircraft parts, to name just a few. As we reported earlier this year, “This move (or lack thereof) comes as part of what is likely a very intentional strategy not to limit China’s sources for the crude oil it is so thirsty for. Especially as the United States buckles down on sanctions against Iran and Venezuela [...] the global crude supply could soon be tightening as tensions in the Middle East grow closer to a boiling point and the [OPEC] shies away from ramping up production levels in response to tightened sanctions on some of the world’s biggest heavy crude producers.”
While it remains true that the world’s fastest-growing oil consumer (China) should be wary of cutting off its ties to the world’s fastest-growing oil producer (the United States), industry insiders like the American Petroleum Institute clearly think that there is now a clear and present danger of China reaching its trade war limit and finally hitting the U.S. where it hurts by finally slapping tariffs on U.S. crude.
By Haley Zaremba for Oilprice.com
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