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Amid LNG industry fears of retaliation, Trump unveils tariffs on more Chinese goods

Highlights

Tariffs set at 10%, increasing to 25% at end of year

China LNG demand estimated to reach 8.4 Bcf/d in 2023

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The Trump administration late Monday rolled out another round of tariffs, on $200 billion worth of additional Chinese goods, in a development warily anticipated by the US natural gas sector because of the potential for retaliatory tariffs on US LNG exports.

The US tariffs would start at 10% effective September 24 and rise to 25% by the end of the year, a phased-in approach meant to give US entities a chance to look for alternative suppliers, senior administration officials said.

It was not immediately clear whether the Chinese would follow through with prior threats to include US LNG in subsequent retaliatory actions. After the US previously proposed 25% tariffs on $200 billion in Chinese products, China in early August announced it might institute a 25% tariff on US LNG tariffs.

Tariffs on US LNG exports would add headwinds for developers of export terminals hoping to cement long-term deals to sell into China's growing LNG market. Chinese LNG demand has risen rapidly over the last two years as the government pursued strong limits on coal use for home heating and electric generation. The preferred substitute fuel has so far been natural gas/LNG, and the policy change drove many of the Chinese LNG import facilities to full utilization last winter.

Chinese LNG demand is expected reach 8.4 Bcf/d by 2023, a 5.1 Bcf/d (154%) build over 2017 levels, and to account for nearly a third of global demand over the period, according to S&P Global Platts Analytics.

In a statement, Trump warned that "if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports."

Senior administration officials said the decision to advance the tariffs followed multiple negotiations in which the US insisted China must alter unfair trade practices and make systemic changes on matters such as forced technology transfers and intellectual property.

"They know the type of changes we need to see and they just to refuse to make those changes," said one official speaking on background. The US remained open to negotiations, the officials said.

REVISED LIST

Responding to comments it had received on the tariff proposal put forward in July, the administration trimmed some product lines from the original list. Among products culled were certain electronic consumer products such as smart watches and Bluetooth devices, chemical inputs for manufacturing such as textiles and agriculture, along with health and safety products and child safety furniture, they said.

In the run-up to the administration's announcement, the oil and gas sector expressed concern that the escalating tariffs could put US companies at a disadvantage in capturing contracts for incremental LNG demand and that the tariffs could impede imports of products important for US oil and gas production.

In testimony in August, Stephen Comstock, director of the American Petroleum Institute, said the broad tariffs would likely slow US natural gas and oil production. He highlighted products on the list such as natural barium sulfate, a weighting agent used in drilling fluids and to maintain control of wells during drilling operations. He noted that the US currently produces limited amounts and about 42% of global supply was produced in China in 2017. It was not immediately clear if those products were still included on the list.

INDUSTRY CONCERNS

Comstock also said the tariffs could open a window for overseas LNG developers competing with US terminals. "The USis one of the world's main LNGsuppliers, but other countries are capable of supplying China-- including Australia, Qatar, Malaysiaand Russia," he said. An impact on construction of domestic LNG projects could cascade into reductions of domestic natural gasproduction, he said.

Katie Ehly, senior policy advisory with the Center for Liquefied Natural Gas, said Monday that if US LNG is included in retaliatory tariffs by China at any level, "there is going to be a problem given the tight market right now and various costs associated with transporting LNG." She added, "We definitely could see it pricing US LNG out of the market."

The UShas already slapped tariffson $50 billion worth of Chinesegoods.

-- Maya Weber, maya.weber@spglobal.com

-- Ross Wyeno, rwyeno@spglobal.com

-- Edited by Jim Magill, newsdesk@spglobal.com