China's Retaliatory Tariffs: A Blow to US Crude Exports in 2025

China's recent imposition of retaliatory tariffs on US crude oil imports is set to push US exports lower in 2025, as the 10% levy makes US crude less competitive in the global market. This move comes in response to President Trump's decision to impose tariffs on all Mexican and Canadian imports into the United States and add a 10% levy on Chinese imports. The tariffs on LNG could see a change in flows of the superchilled fuel into China, potentially reversing earlier plans to boost these imports.

The tariffs on LNG could see a change in flows of the superchilled fuel into China in a reversal of earlier plans to boost these imports, as forecast by Bloomberg Intelligence last month. At the time, the outlet predicted that Trump’s approach to fixing US trade deficits with the country’s biggest trading partners would benefit LNG exporters to Asia, giving them a bigger share of that market. According to Bloomberg Intelligence, Chinese gas traders have committed to buying a total of 14 million tons from US producers beginning in 2026, which is 50% more than China’s previous record of US LNG purchases, set back in 2021. Now, these flows may be in jeopardy unless the tariff exchange stops.

The 10% tariff on US crude oil imports into China is likely to decrease the overall volume of US crude oil exports to China in 2025. This is because tariffs increase the cost of imports, making them less competitive in the global market. In 2024, US crude oil exports to China had already dropped by 46% compared to 2023, due to factors such as China's slowing economy, green energy shift, and geopolitical shifts. The additional 10% tariff will further discourage Chinese buyers from purchasing US crude oil, potentially leading to a further decrease in exports.

In the long term, this tariff could have several effects on the US-China crude oil trade relationship:

1. Diversification of Chinese imports: China may continue to diversify its oil sources, increasing imports from countries like Russia, Iran, and Venezuela, which offer relatively cheaper alternatives due to sanctions. This trend could further reduce the share of US crude oil in China's total imports.
2. Reduced market share for US exporters: The US may lose market share in the Chinese crude oil market, as other countries become more competitive due to lower tariffs or other advantages. This could lead to a long-term decline in US exports to China.
3. Potential retaliation from the US: The US could retaliate with additional tariffs or other measures, further escalating the trade conflict and potentially leading to a long-term deterioration in the US-China trade relationship.
4. Adaptation and diversification by US exporters: The US oil industry may need to adapt and diversify its markets, looking to other regions like Europe, Asia, Africa, and Latin America to offset the loss of Chinese demand. This could help the industry maintain its global competitiveness despite the challenges posed by the tariffs.

In conclusion, China's retaliatory tariffs on US crude oil are likely to push US exports lower in 2025, as the 10% levy makes US crude less competitive in the global market. The long-term effects on the US-China crude oil trade relationship could include diversification of Chinese imports, reduced market share for US exporters, potential retaliation, and the need for US exporters to adapt and diversify their markets.