U.S. commodity exports to China slowed as the trade dispute between the two countries grew, but experts warn of bigger consequences if negotiations do not wind down the escalation of tariffs and tension.
On a macro level, the tariffs could slow the growth rate of U.S. gross domestic product. At the commodity level, tariffs and a prolonged dispute could disrupt the U.S. oil and gas industry that relies on overseas steel and was banking on Chinese customers for their products, energy experts said.
S&P Global Ratings' U.S. chief economist Beth Ann Bovino projected real GDP to grow by 2.3% in 2019. Without the impact of tariffs, the growth rate would have been 2.6%, she said in a Nov. 26 interview. Her forecast was done before Dec. 1, when President Donald Trump decided to forgo the increase for 90 days while representatives from both countries negotiate.
Bovino noted, however, that tariffs on at least $250 billion worth of goods are small relative to a $19 trillion economy that is largely domestically driven and service based. Her forecast assumed 10% tariffs that the U.S. administration issued in September on $200 billion of Chinese goods rises to 25%.
The 90-day negotiations are expected to address certain trade practices by the Chinese identified through the U.S. Trade Representative's 2017 investigation authorized under Section 301 of the U.S. Trade Act of 1974.
Erin Ennis, senior vice president of the U.S.-China Business Council, or USCBC, a group of roughly 200 American companies engaged with China, hoped that the next 90 days could help clarify what China is going to do and provide a road map of how discussions could proceed after the 90 days, she said in a Dec. 13 interview.
US crude oil exports affected despite exemption from Chinese tariffs
Though U.S. crude oil exports have been exempt from Chinese tariffs, exports to the country slowed recently, according to data from Panjiva, a product of S&P Global Market Intelligence. Panjiva data showed U.S. crude shipments to China stopping from August to October despite overall U.S. crude exports rising in those months.
Marianne Kah, an adjunct research scholar at Columbia University, warned that there is a lot of "noise" in U.S. export data. In a late November interview, Kah said she suspected the slowdown showed that China was buying less light oil from the U.S. and turning to cheaper, heavier crudes that their refineries can process.
Victor Shum, Singapore-based vice president of energy consulting for IHS Markit, pointed to reports that Chinese oil major Sinopec's division Unipec halted shipments from the U.S. Both Kah and Shum believe the Chinese have not stopped buying U.S. crude. China might be purchasing cargoes indirectly, which does not show up easily in export tracking data.
LNG contracts at risk, coal market sees less of an impact
Beyond the crude oil market, the tariffs could challenge the "next wave" of natural gas liquefaction and export projects as they look to sign long-term contracts with prospective gas buyers to support construction, according to Tim Boersma, a senior research scholar at Columbia University's Center on Global Energy Policy. However, Boersma did not read too much into data that suggested slowing U.S. LNG exports to China in late 2018.
While the U.S. shipped only 83.4 Bcf of LNG to China in the first 10 months of 2018, China is projected to take 13.9 Bcf/d by 2040, more than the demand of all of Europe, according to the 2018 BP Energy Outlook. That appetite for LNG should bolster U.S. exporters, provided the trade spat does not worsen. Also of concern to the LNG industry, the 25% tariff on steel imports could make it more expensive to produce and transport America's oil and gas.
Monthly exports of U.S. coal do not show a clear sign of impact from the trade dispute. Charles Dayton, vice president of market analytics for Doyle Trading Consultants, said he saw a clear impact from tariffs issued by Turkey on U.S. thermal coal exports but is "not terribly bullish or bearish when it comes to U.S. exports to China" because only a small portion of America's coal exports go there.
Most of U.S. coal exports to China have been metallurgical or coking coal, which is used in steelmaking, and petroleum coke, a byproduct of the refining sector used in industrial processes, and exports of those products mainly went to other countries. Dayton said Europe has been the biggest market for U.S. coal in recent years.
Aside from month-to-month exports, experts eye the secondary impacts of tariffs. S&P Global Ratings' Bovino said the indirect costs to business confidence and whether businesses start shutting their pocket books is the bigger concern.
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