US President Donald Trump’s tweet last week that he will raise U.S. tariffs on $200 billion worth of Chinese imports to 25 per cent from 10 per cent has rattled oil and commodity markets the world over.
Oil prices reacted with a sharp drop in prices. Brent crude futures offered an early verdict to Trump’s tweets, falling as low as $69.22 a barrel in early Asian trade, a drop of as much as 2.3 per cent from Friday’s close.
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday,” Trump tweeted on Sunday.
Another round of tariffs will in all likelihood prompt a retaliatory move, which, as before, many worry will affect U.S. oil and LNG exports to China. Currently, China taxes U.S. LNG imports at a 10-per cent rate but does not tax crude oil imports. These were suspended last summer anyway, as Chinese refiners waited to see where trade negotiations will go. It was only last month that China’s Unipec—the trading arm of Sinopec—received the first cargo of U.S. crude since September.
Trump’s comments stand in contrast to the recent positive signals emanating from both the U.S. and Chinese camps that progress to end the tit-for-tat tariff war was being made and a deal was within sight.
The worst outcome would be for the United States to go ahead and raise tariffs this week, which would likely scupper the current negotiations and force Beijing to retaliate. The problem for China is that relatively quickly they will run out of things to retaliate against, unless they are prepared to go nuclear and impose tariffs on the big ticket imports items such as aircraft.
In the meantime, it’s likely that U.S. exporters of crude oil, coal and liquefied natural gas (LNG) will likely remain largely frozen out of the world’s biggest energy importer. Growing exports of energy products from the United States to China were one of the few areas actually working to reduce the trade imbalance between the world’s two largest economies, at least until the trade dispute got going in earnest in the middle of last year.