China Just Laid Down The Gauntlet, Proposes Tariffs On US Natural Gas

Gulshan Khan/Pool via REUTERS

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Jason Hopkins Immigration and politics reporter
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President Donald Trump’s trade war with China could reach a whole new level if Chinese officials follow through on a threat to impose tariffs on U.S. natural gas.

Trump’s trade war is escalating rapidly. The back-and-forth began when the White House in July slapped a 25-percent tariff on a litany of Chinese goods worth around $34 billion, a move intended to punish them for intellectual property theft and unfair trade practices. Chinese leaders immediately retaliated with similarly sized tariffs on vehicles, soybeans, pork and other U.S. commodities.

Now — in response to the Trump administration threatening to raise the tariff rate on other Chinese goods — its government is teasing a 25-percent tariff on imports of U.S. natural gas.

If enacted, the tariff would be a major blow to the American natural gas industry, which, thanks to the development of hydraulic fracturing, has been experiencing unprecedented growth in recent years. Cheaper and less polluting than other fossil fuels, the production and consumption of liquified natural gas (LNG) has grown rapidly.

The trade of LNG has also jumped. U.S. natural gas exports quadrupled in 2017, according to the Energy Information Administration. Over half of those exports went to Mexico, South Korea and China. If President Xi Jinping decides to follow through on a 25-percent tariff, the result would have major ramifications for American shale producers.

Cheniere, America’s biggest exporter of natural gas, saw its shares drop nearly 8 percent upon the report.

“At least in the short term any Chinese buyer looking for long-term supply would have to drag their feet on signing a U.S. contract,” Jason Feer, head of business intelligence at Poten & Partners Inc., stated to Bloomberg.

Notably, China’s threats follow a July meeting between Trump and European Commission President Jean-Claude Juncker, where the EU leader promised to purchase more U.S. natural gas.

“[W]e agreed today to a strengthen and strengthening of our strategic cooperation with respect to energy,” the Republican president stated at the Rose Garden. “The European Union wants to import more liquefied natural gas — LNG — from the United States, and they’re going to be a very, very big buyer. We’re going to make it much easier for them, but they’re going to be a massive buyer of LNG, so they’ll be able to diversify their energy supply, which they want very much to do.” (RELATED: Trump’s Promise Of LNG To Europe Will Undercut Russia’s Energy Dominance)

China, for its part, might look to Russia for more LNG. By the end of 2019, Russia will begin sending more natural gas to China through its new 2,500-mile Power of Siberia pipeline.

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