A heavily anticipated trade war with China is now underway — and its effects could ripple throughout the U.S. energy sector.
The Trump administration slapped a 10 percent across-the-board tariff on Chinese imports Tuesday, sparking China to levy duties on U.S. natural gas, coal, crude oil, pickup trucks and other products.
The new tariff policy — which the White House said it implemented to stem the influx of undocumented migrants and illicit drugs like fentanyl into the U.S. — will complicate hundreds of billions of dollars in annual trade between the two countries. It could also raise energy prices for U.S. customers, according to experts, even after President Donald Trump pledged on the campaign trail to slash U.S. costs.
In a memo Tuesday, independent research firm ClearView Energy Partners said the Chinese tariffs are “targeted and symbolic,” adding that they hit “fossil energy and vehicles central to Trump’s energy dominance agenda and manufacturing revival.” The tariff on Chinese products was placed on top of existing tariffs, which the Biden administration maintained and in some cases increased from the levels in Trump’s first term.
In his first two weeks in office this year, Trump has unveiled a set of policies to promote U.S. fossil fuel drilling and crack down on renewables. But his alliance with the oil and gas sector is taking a back seat as tariffs begin.
“We hope this situation is resolved swiftly and will continue to work with the new administration to expand the nation’s energy advantage and protect American jobs,” Dustin Meyer, senior vice president of policy, economics and regulatory affairs at the American Petroleum institute, said in a statement Tuesday.
“Energy markets are highly integrated, and U.S. energy exports to China are an important tool in reducing our trade deficit,” he said.
Charlie Riedl, executive director of the Center for LNG trade association, said China’s choice to slap tariffs on U.S. liquefied natural gas adds “uncertainty into an industry that will play a crucial role as part of America’s global energy dominance.”
“We urge the administration to ensure that U.S. LNG remains a priority in trade negotiations and that barriers to our energy leadership are swiftly removed,” he said in a statement.
In November, 3 percent of U.S. LNG exports were sent directly to China, according to a recent report from the Department of Energy. But international trading firms ship China much more U.S. LNG, according to some analysts.
Courtney Manning, a China expert at the think tank American Security Project, said the Chinese tariffs are likely to increase costs for U.S. firms, which could be passed onto U.S. customers or taxpayers. She said about 20 to 25 percent of LNG consumed in China could be U.S. gas, cautioning that exact volumes traded on the international market are hard to track.
“We’re kind of putting ourselves in the line of fire as far as our LNG strategy is concerned,” Manning said.
In its last year in office, the Biden administration paused new approvals for LNG projects, arguing the shipments could ratchet up prices on the domestic market. Trump nixed the pause on his first day in office.
Fauzeya Rahman, editor and LNG specialist at the commodity research group ICIS, said Chinese tariffs on U.S. LNG could have more of an effect on smaller Chinese buyers looking to line up long-term offtake of LNG, rather than bigger “first-tier” companies.
Chinese buyers have about 20 million metric tons per year in long-term contracts from the United States, Rahman said, noting that many contracts are “due to start in the next few years, depending on project timing.” Those include agreements with projects like Venture Global’s Plaquemines LNG, as well as projects that haven’t yet reached a final investment decision.
“The ramp-up in contracted volumes could make any potential tariff impact in the future more significant,” Rahman said in an email Tuesday. “However, with most US LNG volumes sold on a destination-free basis, cargoes could end up delivering to Europe or elsewhere, as needed.”
The effects on China’s tariffs on U.S. crude and coal also remain to be seen.
China imported 362 million barrels of crude oil and petroleum products in 2023, the U.S. Energy Information Administration said, a 54 percent increase from the year before. The world’s second-largest economy is also a top importer of U.S. coal, an industry the Trump administration has sought to boost in recent weeks.
U.S. energy companies that rely on Chinese imports of steel and other goods to build energy infrastructure, such as pipelines, pleaded to avert the tariffs.
On Tuesday, White House trade counselor Peter Navarro told POLITICO’s Dasha Burns that the Trump administration applied a lower tariff to China because “it’s the size of the market and the economy, and we already have substantial tariffs on communist China.”
When asked Tuesday about China’s retaliatory tariff, Trump said, “It’s fine.”
“We’re going to do very well against China and everybody else,” he said. “Right now, they’re taking advantage of the Biden administration like I’ve never seen.”
Meanwhile, China — which is led by President Xi Jinping — has filed a complaint with the World Trade Organization.
“The unilateral tariff increase by the U.S. seriously violates WTO rules and is a typical act of unilateralism and trade protectionism,” the Chinese Embassy in the United States said in a statement.
“It undermines the foundation of China-U.S. economic and trade cooperation and is bound to affect and undermine future counternarcotics cooperation between the two sides,” the embassy continued.
A White House official granted anonymity said Trump is focused on reducing the number of fentanyl-related deaths and noted there are clauses on retaliation in executive orders on trade that Trump has signed.
The State Department didn’t provide a comment Tuesday.
North American trade
Tensions between the United States and China escalated as the threat of a trade war between the United States and Canada eased this week.
The White House paused its planned 25 percent tariffs on Canada and Mexico after receiving assurances from the leaders of those countries about their efforts to address cross-border migration and fentanyl transit. The levy was lower for Canadian energy resources, including crude and critical minerals.
But the tariffs are on hold for only a month. Canada’s top energy minister said long-term U.S. tariffs on Canada could push it to build out new energy infrastructure and shift its economy away from the United States.
“It’s important for us to find pathways to move past this quickly,” Jonathan Wilkinson, Canada’s minister of energy and natural resources, told reporters Tuesday, referring to the possibility of U.S. tariffs on Canada. He spoke following a speech and fireside chat at an Atlantic Council event.
“If there is a significant implementation of tariffs over an extended period of time, Canadians will have to look at how do we actually build the infrastructure required to ensure that we are able to export ourselves,” he said, describing U.S. tariffs on Canada as a “lose-lose” for both countries.
Instead, Wilkinson pitched the creation of a U.S.-Canada alliance around energy and minerals, including the processing of rare earth materials and the “opportunity to work together to build a complete North American nuclear fuel cycle, which would mean relying less on Russia and enhancing continental security.”
Wilkinson said while the United States is a major oil producer, using it domestically would mean refitting refineries, an expensive and time-intensive endeavor.
“The steps that you would have to take and the economic impact would be very significant,” he said. “I’m not sure why you would do that relative to use Canadian crude — which is less expensive, the refineries are already set up for it — and the light sweet crudes that are exported around the world, you would continue to export those.”
Nick Iacovella, senior vice president of public affairs and communications for the tariff-supporting lobbying group Coalition for a Prosperous America, said the Chinese tariffs are “a critical step toward ending the lawlessness at our ports, rebuilding domestic manufacturing, and securing our supply chains.”
He also said “additional action will be necessary” on Canada and Mexico.
Wilkinson told reporters that finding additional markets beyond the U.S. is a challenge for Canadian fossil fuel producers.
“It’s a bit more problematic with oil and gas because those require fixed infrastructure,” Wilkinson said, saying it’d be easier to do for critical minerals.
He added that Canada is opening “a number of LNG facilities this year and next year in Canada, which will give some more diversification.”
Will clean energy take a hit?
Canada and Mexico also provide more than half of U.S. imports of large power transformers, according to BloombergNEF. Transformers are critical parts of the electricity grid and have been in short supply in the U.S. for years.
Tariffs on imports from those countries could also affect electric vehicles. Canada supplied 77 percent of U.S. imports of electric buses last year, and Mexico provided more than a third of imported EVs. However, EVs could have an edge over gasoline-powered cars with tariffs.
Tariffs could “conceivably raise the cost of internal combustion engine vehicles by more than that for electric vehicles, which notably have fewer parts,” BloombergNEF said.
Duties on Canada and Mexico also pose a challenge for the wind industry, which relies on steel from those countries to build turbines.
Endri Lico, a wind analyst at Wood Mackenzie, said manufacturers may try to get around trade barriers by pushing for higher exports in the remaining 30 days and storing equipment for projects slated to be put online this year.
The biggest challenge for the buildout of renewables and low-carbon energy may be uncertainty, because Trump has threatened higher tariffs and the North America trade framework remains unclear, experts said. The tariffs also are occurring amid uncertainty about Inflation Reduction Tax credits and federal agency spending that could affect billions of dollars of projects.
Even if tariffs are short in duration, “any kind of volatility will send shock waves through the [clean energy] market,” said Robbie Orvis, an analyst at Energy Innovation, a climate and energy think tank.
The Chinese tariffs are also likely to hit the clean energy market in the U.S. Tariffs could wreak havoc with the market for electric grid equipment, which could pose a significant problem in the coming years as power demand surges, according to analysts. China is a major supplier of grid converters.
“The tariffs raise costs for utilities and manufacturers at a time when U.S. grid capacity demand is accelerating, making them especially disruptive,” BloombergNEF said in a research note Monday.
China is also the dominant supplier in the U.S. of lithium-ion batteries, which are used for grid storage and electric vehicles. BloombergNEF noted that the Biden administration increased tariffs on Chinese EV batteries to 28.4 percent last year. Even if the rate were doubled, China would still outcompete U.S. battery alternatives on cost, it said.
While the renewed trade war with China could increase the cost of the technology, it’s not likely a “deal breaker” for U.S. renewable projects, said Edurne Zoco, executive director of Clean Energy Technology at S&P Global Commodity Insights.
“Clean tech imports from China and other countries with significant weight into the U.S. market are already affected by previous tariffs and/or sectorial barriers,” Zoco said in an email, adding that most components for solar components are no longer imported from China.