Destruction of energy trade; power struggle between two economic giants intensifies

WPB: Following Beijing’s retaliatory response to Donald Trump’s tariffs, trade in crude oil, liquefied natural gas (LNG), and coal between the U.S. and China is effectively coming to a halt.

China, the world's largest importer of these three energy commodities, imposed a 15% tariff on U.S. LNG and coal, as well as a 10% tariff on crude oil and agricultural equipment. This move by Beijing came after the Trump administration imposed a 10% tariff on all Chinese imports to the U.S.

Although the 10% tariff was lower than the 60% Trump had threatened during last year’s election campaign, it was still sufficient to prompt an immediate response from China. China's reaction increases the risk of further U.S. actions, escalating trade tensions between the world’s two largest economies.

There is a risk that a series of retaliatory measures could slow global economic growth and drive up inflation, as countries would be forced to reorganize supply chains and deal with increasing disruptions in industries such as manufacturing and construction.

However, the immediate impact of China's actions on imports of U.S. crude oil, LNG, and coal is likely to be limited. According to commodity analysts at Kepler, China imported 5.99 million barrels of crude oil from the U.S. in January. This figure, equivalent to about 193,000 barrels per day, accounts for less than 2% of China’s total imports.

The January imports were indicative of recent monthly volumes; however, China has occasionally imported more U.S. crude oil. For example, in June 2023, its imports reached 948,000 barrels per day—the highest level in two years.

China’s LNG imports from the U.S. have also been low in recent months, decreasing from 220,000 tons in December to 190,000 tons in January.

The volume of LNG imports has been relatively volatile, reflecting the spot-market nature of U.S.-China trade. However, in October last year, imports surged to 780,000 tons—the highest level in two years.

China's total LNG imports have recently averaged around 6.5 million tons per month, suggesting that the U.S. supplies between 4% and 12% of China’s total LNG imports.

According to Kepler, China imported 1.34 million tons of coal from the U.S. in January, marking the strongest monthly record in two years, surpassing the previous record of 1.55 million tons in August last year. Official customs data shows that China’s total monthly coal imports in 2024 have averaged 45.2 million tons, making the U.S. a relatively small supplier.

Broader consequences of the trade war

Given that both China and the U.S. will likely be able to adapt to Beijing’s energy import tariffs without major disruptions, the question arises: does this really matter?

The answer is yes. These tariffs intensify tensions and accelerate the growing division of the world into two trade blocs—one aligned with Trump’s America and its allies, and the other favoring China and what is described as the Global South.

There is a risk that Trump will continue using tariffs as part of his "America First" policy, targeting not only traditional rivals but also longstanding allies. This approach could push more commodity producers toward the emerging BRICS trade bloc.

China is also flexing its muscles in the commodities sector by imposing new export controls on five critical minerals used in defense industries and the energy transition. These controls, which take immediate effect, cover the export of tungsten, tellurium, bismuth, indium, molybdenum, and related products.

According to Reuters, these measures will likely drive Western countries to intensify efforts to find and develop alternative sources. As a result, they will have to engage more with companies and governments in Africa, Asia, and Latin America—many of whom have been affected by U.S. tariffs and cuts in financial aid.

By WPB

Bitumen, Market, LNG, Crude