One of President Trump’s first orders of business after his inauguration was to introduce additional tariffs on Chinese imports. Beijing promptly returned the gesture, imposing tariffs on U.S. energy imports. Now it’s time for the aftershock.
The effect of this primary tariff exchange was immediate, with Chinese energy traders beginning to redirect cargos of liquefied natural gas to Europe, which has been more than happy to take in any spare LNG as it reels from the first real winter in three years. Crude oil exports from the United States to China will also be affected by the 10% duty. According to some, however, the effect of the tariff war will be most palpable in coal.
The United States imposed tariffs of 10% on all Chinese imports at the end of January. China only targeted energy imports because they are an easy target, even though oil and LNG, which are substantial in absolute terms, only represent a small portion of China’s total imports. Per Reuters’ Clyde Russell, U.S. crude oil accounts for 2% of China’s overall crude oil imports and liquefied natural gas from the Gulf Coast only represents 5% of China’s total imports of the superchilled fuel. Coal, Russell said, however, was an entirely different matter.
While media attention tends to focus on the United State’s status as the biggest oil and gas producer in the world and one of the top 10 exporters of these commodities, the U.S. is also a major coal exporter, shipping the hard fuel to more than 70 countries, according to the Energy Information Administration. As of 2023, China was its fifth-largest export destination, accounting for 6.46% of the total exports. As of the third quarter of 2024, China took in 3.675 million tons of U.S. coal, which made it the second-largest individual buyer of U.S. coal after India.
Now, this will probably change as China looks for tariff-free coal elsewhere and the U.S. redirects its coal exports to its biggest client: India. Reuters earlier this month cited unnamed federal government officials as saying they expected the change in coal flows, noting this could undermine Australia’s share in the Chinese coal import market in favor of U.S. exporters.
The effect is seen to be especially marked in coking coal—the kind used in steel production—of which the U.S. exports a lot to China. Last year, per Reuters, U.S. exports of coking coal to China swelled by some 33% to $1.84 billion. Coal exports to India have also been on the rise as the world’s third-largest coal importer sought to diversify away from its top supplier, Australia.
According to Russell, U.S. coal exporters could try to hold on to their Chinese market share by introducing discounts. Alternatively, they could direct more coal to India while China looks for other sources of the commodity, such as Mongolia and Russia. Indeed, the media are already reporting that Mongolia is set to boost its coal exports to its neighbor by a sizable 20% this year, aiming to boost total export capacity to 165 million tons.
Russia, however, may not be a viable option after last year Russian coal exports to China actually booked a decline. Per analysts cited by Reuters last month, Russian coal has competitiveness problems due to high production costs and a railway capacity shortage. This means that just like the U.S. has limited options for alternative destinations, China has limited options for alternative suppliers.
Canada is another potential beneficiary of the tariff war, alongside Australia, which will regain market share in China as U.S. coal goes to India. Australia and Canada together could replace U.S. coal exports to the country, reshaping the global coking coal market.
By Irina Slav for Oilprice.com