Tariff Reductions Aim to Revive US-China Trade

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Mfame Editor
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  • Oil and LPG trade expected to rebound.
  • China’s GDP and oil demand forecasts cut for 2025.
  • Analysts call tariff cuts bullish for oil.

The US and China have agreed to cut mutual tariffs on most products in a 90-day hiatus, which could bring back oil and LPG trade between the two nations. The US will reduce tariffs on most Chinese products from 145% to 30%, while China will cut its tariffs on American products from 125% to 10%, as per a joint statement issued May 12. The cuts will take effect on May 14, reports S&P Global.

Economic and Energy Outlook Remains Pressured

Trade tensions had led to a sharp decline in bilateral trade, affecting world economic indicators. S&P Global Commodity Insights analysts said that US-China trade lowered China’s GDP growth estimate to 3.7% and reduced oil demand growth for 2025 to 78,000 b/d from January’s estimate of 4.2% GDP growth and 270,000 b/d oil demand growth.

“The larger-than-expected tariff reductions are likely to revive some trade between the US and China, which had been completely shut by previous high tariffs. This development is BULLISH for oil prices, although it may take time for trades to fully resume,” said Commodity Insights analyst Zhuwei Wang. “It is important to note that the tariff reductions do not apply to those from the first Trump administration, which account for approximately 15%-20%. Consequently, Chinese goods exported to the US will still face tariffs between 45% and 50%. Additionally, China’s 15% additional tariffs on US coal and LNG imports, along with 10% on crude oil, agricultural equipment and heavy trucks, which were announced in February, remain unchanged,” Wang added.

Energy Markets Respond to Tariff Announcement

  1. Oil: Oil prices advanced after the news. Platts valued Dated Brent at $65.065/b on May 12, up by $1.475. NYMEX WTI reached a high of $63.91/b before closing at $61.95/b, a gain of 92 cents.
  2. LNG: Platts valued FOB Gulf Coast LNG at $10/MMBtu, an increase from $9.91/MMBtu. The JKM benchmark for Northeast Asia was at $11.937/MMBtu on May 9, reflecting strength based on international competition for supply.
  3. LPG: Enterprise Propane at Mt. Belvieu increased $3.875 to $75.875/MMBtu on May 12. Northwest Europe propane cargoes also rose to $476.75/mt on crude strength and expectations of tighter US-to-Europe supply due to higher Asian demand.
  4. Containers: Container freight rates remained stable. Platts valued PCR 23 (Southeast Asia to West Coast North America) at $2,200/FEU, and PCR 25 (to East Coast) at $3,200/FEU. Market participants were cautiously optimistic about volume recovery from China.

Current State of Trade Flows

  1. Oil: US crude exports to China have been absent since February, when the last shipment, 100,000 b/d, was delivered. The final refined products sale was in March at 32,000 b/d.
  2. LNG: Regardless of the agreement, US exports of LNG to China are not likely due to the ongoing 25% duty. China hasn’t received any US LNG imports since February. Four June cargoes were swapped recently, which included PetroChina selling to Vitol at $12/MMBtu.
  3. LPG: US exports of propane, ethane, and butane to China fell to 397,000 b/d in April from March’s 910,000 b/d. Ethane is still tariff-free. With tariffs relaxing, Asian demand should draw US cargoes back out of Europe, where arbitrage is presently shut. US-Asia LPG arbitrage was valued at $123.50/mt on May 9.

Tariff reductions are easing China’s propane dehydrogenation facilities, since US propane has over 58% of the market share in China’s imports of the same.

Sector-Specific Impacts

  1. Metals: US tariffs on steel, autos, and aluminium stay put. Chinese exports of steel to the US will be hit by a 70% tariff in 2025, but given that US sales represent just 0.8% of China’s total, the effect is low. Chinese exports of aluminium are likely to hold up well. US copper scrap imports can resume under the new 10% tariff.
  2. Lithium-Ion Batteries: The battery industry has witnessed a project delay on account of tariff burdens. In the period between 2021 and February 2025, the US imported almost $53 billion in batteries and parts from China. Changes in tariffs translate to 2025 combined rates being now 58.4% for EV batteries and 40.9% for non-EV batteries.

Infrastructure and Service Providers Adjust

  1. Oil Services: Oilfield service companies are coping with exposure to imported commodities. Baker Hughes attributed its wide US base of manufacturing as a hedge against inflation. NOV reported it has the world’s largest drill pipe plant in Texas and is hardly reliant on Chinese imports. NOV’s Texas plant manufactures the “highest-quality, most technically advanced drill pipe that has enabled super extended lateral and ultra-deepwater drilling,” the company said.
  2. LNG Terminals: In spite of trade tensions, US LNG infrastructure keeps growing. Golden Pass LNG intends to add personnel and begin shipping by the end of the year. Venture Global’s Plaquemines LNG and Cheniere’s Corpus Christi expansions are also moving ahead along the Gulf Coast.

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Source: S&P Global