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 if Beijing follows 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 and is also one of the biggest importers of U.S. propane and liquefied natural gas (LNG).
Associations of U.S. manufacturers, retailers, and petroleum and chemicals producers have stepped up calls on the U.S. Administration to seek alternative solutions to the tariffs, warning that additional levies would hurt U.S. jobs and growth.
If the United States were to impose tariffs on oil, U.S. oil sellers would have to look for other destinations and attract new customers, which could cost them more.
Last year, more U.S. crude oil was sent to China than any other destination except Canada, the EIA said in an analysis on Tuesday. China received more U.S. crude oil in 2017 than the third- and fourth-largest importers combined, the United Kingdom and the Netherlands.
U.S. crude oil exports to China averaged 330,000 bpd between January and April this year, with February sales to China beating even exports to Canada, according to the EIA.
And it’s not just crude oil. China was also the third-largest destination for U.S. propane exports last year, behind only Japan and Mexico. Around half of U.S. propane exports went to Asia in 2017, displacing supplies from Middle Eastern countries and some regional production of propane.
For LNG, 15 percent of U.S. exports went to China, making it the third-largest importer of U.S. LNG behind Mexico and South Korea.
China, however, has explicitly excluded LNG from its list of U.S. energy goods that may be subject to tariffs, as it seeks to fight air pollution by a massive switch from coal-fired to gas-fired residential heating.
Although China has ample supplies of coal, it imports some from the U.S. Last year, China received 3.2 million short tons of U.S. coal, which is equal to 3 percent of the total U.S. coal exports. This makes China the tenth-largest destination for U.S. coal exports.
China has become a key trade partner for U.S. energy exports, and potential tariffs on U.S. energy goods could hurt U.S. producers and industries.
Last week, China and the U.S. imposed another round of tariffs on each other, and the U.S. said on Tuesday that it could impose tariffs on an additional US$200 billion worth of Chinese imports.
“As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports,” U.S. Trade Representative Robert Lighthizer said.
If China responds with tariffs on energy, this could cut sales of U.S. energy goods, analysts and executives told Reuters last month, when Beijing first threatened to slap tariffs on U.S. energy.
“It’ll force you to put your oil somewhere else, and it’ll cost you more” to attract more buyers, said Ron Gasser, vice president at Texas-based Mammoth Exploration.
In a statement on the latest U.S. list of potential new tariffs on China, David French, Senior Vice President for Government Relations at the National Retail Federation, said on Tuesday:
“The latest list of $200 billion of products to be subject to tariffs against China doubles down on a reckless strategy that will boomerang back to harm U.S. families and workers. The threat to the U.S. economy is less about a question of ‘if’ and more about ‘when’ and ‘how bad.’ Tariffs on such a broad scope of products make it inconceivable that American consumers will dodge this tax increase as prices of everyday products will be forced to rise. And the retaliation that will follow will destroy thousands of U.S. jobs and hurt farmers, local businesses and entire communities.”
Jack Gerard, Cal Dooley, and Edward R. Hamberger—the president and CEO of the American Petroleum Institute, president and CEO of the American Chemistry Council, and president and CEO of the Association of American Railroads, respectively—wrote in an opinion piece in the Washington Examiner published on Wednesday that the trade war is threatening the U.S. economy and could add “hundreds of billions of dollars in potential costs for American businesses — costs that could ultimately be borne by consumers.”
“Pre-tariffs, the private sector was poised to invest $1.34 trillion in energy infrastructure to keep pace with surging production — supporting more than 1 million jobs each year on average through 2035. Tariffs could stifle hundreds of billions of dollars’ worth of projects — including new pipeline infrastructure needed to get oil and natural gas from the prolific Permian Basin to markets. The steel tariffs alone could increase the cost of a 280-mile pipeline by as much as $76 million,” Gerard, Dooley, and Hamberger said.
“It’s already clear that this well-intentioned policy will actually make the United States less competitive, undermine this administration’s vision of energy dominance and the manufacturing renaissance, and almost certainly destroy many more jobs than it protects.”