US/China trade war impact on oil and gas

Oil and gas companies based outside the US and China are enjoying potential tariff-based trade advantages in the American and Chinese markets because of the deepening trade war between the world’s two largest economies, writes Keith Nuthall.

US President Donald Trump has authorised an increase in 10% duties to 25% on China-exported refined and crude oils and motor fuels (including kerosene), natural gas, LNG, LPG and naphtha. The larger tariffs – which entered fully in force on 1 June 2019 – also cover China-made natural gas byproduct sulphur, tarmac, coal gas, water gas, tar, pitch and benzene, as well as steel tubes and pipes.

The increase in duties was designed to put the Chinese government under pressure to negotiate a trade deal, addressing US concerns about Chinese intellectual property protections for US technology exports to China. Meetings had been held in March, April and May, but a US government note claimed: ‘In the most recent negotiations, China has chosen to retreat from specific commitments agreed to in earlier rounds. [Given] the lack of progress…, the President has directed the [US] Trade Representative to increase the rate of additional duty to 25%.’ This is to be paid on top of any pre-existing duties the US may have charged on these Chinese oils and gas sector exports.

In response, China has increased its own duties on US products. Some of these tariffs have also been raised from 10% to 25%, notably on LNG, sulphur, steel oil and gas pipelines. Duties on US-made fuel pumps have risen from 10% to 20%. And tariffs on US hydraulic fluids for brakes and other hydraulic fluids; oils from bituminous minerals; and steel containers containing LNG  have risen by 5% to 10%.

‘China deeply regrets that the US has decided to increase the tariffs from 10% to 25% on $200bn worth of China goods exported to the United States,’ said a China Ministry of Commerce note, adding that it wanted the US-China trade talks to continue – which has happened, although with no real progress.