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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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API: Trade War Already Hurts U.S. Energy Exports

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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  • Mamdouh Salameh on June 30 2019 said:
    The trade war in not only hurting US energy exports but also the whole US economy. Moreover, China can immediately replace the crude oil and LNG it has been importing from the United States. US LNG projects in particular depend on Chinese finance and long-term contracts with China.

    President Trump’s trade war against China is hurting the US economy far more than China’s. This is because China’s economy is 28% larger than the US economy based on purchasing power parity (PPP) which is the measuring stick used by both the World Bank and the International Monetary Fund (IMF) to measure economies of the world. Moreover, China’s economy is far more integrated in the global trade system than America’s thanks to China’s Belt & Road Initiative (BRI). That is why China’s economy can withstand the damage caused by the trade war far more than America’s.

    President Trump and his advisers shouldn’t overestimate the United States power vis-à-vis China. China will never kowtow to the United States and that it is biding its time and sharpening its claws.

    He should instead stop his trade war against China and try to reach an accommodation for the benefit of the global economy and also the economies of the United States and China.

    If, however, he continues escalating the trade war and tries to push China into a corner, he will find that China has very powerful weapons in its arsenal capable of inflicting real harm on the US economy and the dollar.

    Some of these weapons have been dubbed as China nuclear options. The first is for China to retaliate by offloading its holdings of US Treasury bills estimated at $1.3 trillion. That will immediately cause a steep devaluation of the dollar thus leading to a serious exacerbation of both the US budget and US outstanding debts.

    The second weapon is for China to impose an embargo on the supply of rare earth minerals to the United States. That could potentially cripple large swathes of US industry from smartphones, turbines, lasers, missiles, advanced weapon sensors, stealth technology and jamming technology to name but a few. By the time the United States has found alternative supplies, the damage would have been done.

    China gave two hints that if the trade war escalates further, it will resort to the nuclear options. The first is when Chinese President Xi Jinping visited on obscure factory of rare earth minerals.

    The other is when he likened China’s determination to face down the United States in the trade war to the Red Army’s Long March which ended in the victory of the communists in China. What is President Jinping was telling President Trump is that China will never capitulate no matter how long the trade war takes.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Mark Stable on June 30 2019 said:
    Well, anything to bring the oil price down is clearly welcome, so an excellent article - well done on reducing the artificial hysteria!

    I'm sure the Chinese are happy to increase their energy costs by tariffs unlikely to be of relevance for now.

    Luckily they have so much stored in reserves at present and purchase most under long term contracts anyway (not in the futures casino) that current crude prices for a while won't really matter much to them anyway.

    Soon they will buy most of what they need from Russia anyway, and after that it would then be a good time to turn back to the US as a major source of supply once things calm down. The Middle East will luckily become irrelevant - but in the meantime China, Russia and the US will play Saudi and OPEC along and take away their market share. Serves them right for being greedy....

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