China has removed crude oil from its list of items being slapped with a 25 percent tariff, The Wall Street Journal reported Friday.
It seems unusual for those used to America being an energy importer to hear about energy exports, particularly to a country as big as China. However, America’s role in petroleum production has steadily increased for quite some time now, meaning industry in China was about to feel a serious pinch.
“Over the past two years China has become the biggest buyer of U.S. crude-oil exports, last year taking a fifth of the total,” Chuin-Wei Yap wrote in the Journal.
Beijing had originally announced that oil was going to be on the list of items slapped with a 25 percent tariff issued in response to the Trump administration’s tariffs.
However, when the final list of $16 billion in tariffed goods was issued on Wednesday, oil was conspicuously absent.
“China’s Ministry of Commerce didn’t explain the omission and didn’t immediately respond to questions,” Yap reported.
China still called the measures “unreasonable” and said they had taken the measures “to safeguard its legitimate rights and interests and the multilateral trading system.” However, the measure seemed to be more about safeguarding the interests of Sinopec Group, the state-owned Beijing-based energy giant.
“Sinopec did a lot of lobbying work with the government,” an individual with knowledge of the situation told Reuters. They said the petroleum manufacturer used its clout to move the decision of the Ministry of Finance and the Ministry of Commerce.
“The U.S. will be the single largest source of new oil supplies outside OPEC. It’s in China’s interest to diversify supplies,” another source told Reuters.
“Removing crude imports, worth roughly $8 billion annually based on Sinopec’s earlier forecast of 300,000 barrels per day (bpd) for 2018, also gives Beijing room to maneuver in future negotiations with Washington, especially as it may soon lose some Iranian oil shipments due to reimposed U.S. sanctions,” Reuters noted.
And that could mean big things in the trade war.
“The issue for the Chinese is that any tariff on U.S. exports, (including) oil, will likely hurt their economy disproportionately because they have to import,” Kenneth Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, told Reuters.
“U.S. exports will find a home regardless of how the global supply deck is reshuffled.”
Even though oil won’t be on the list when the new tariffs go into effect on August 23, diesel, kerosene, lubricants and propane will be included.
However, this is a pretty major blink from China — and a huge win from the Trump administration.
If Beijing’s need for oil brings them to the table, that’s yet another bargaining chip the United States can use to get a more sane trade policy
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