How U.S.-China Trade Fight Could Hurt America’s Energy States

The trade war with China shows no sign of abating. The Trump administration has signaled its intention to impose tariffs on an additional $200 billion of Chinese products. This comes after the two countries imposed tit-for-tat tariffs of $34 billion on each other’s goods.

While many U.S. states and their industries are on front line of U.S.-China trade war, the trade standoff is threatening to claim another victim: U.S. energy producing states. China is hinting that it may place retaliatory tariffs on U.S. energy exports, which is one of its most successful export industries in recent years. If this indeed happens, then China would not only deprive the United States of a lucrative trade, but also have significant impact on the development of U.S. LNG trade which has been a priority of the Trump administration.

China has emerged as a key destination for U.S. energy exports. In particular, China is one of the largest importers of U.S. crude oil, propane, and liquefied natural gas, which highlights the growing interdependence of the two nations’ economies, especially when it comes to trade in energy commodities.

In 2017, China imported 20 percent of U.S. crude oil and ranked second after Canada which had a 29 percent share. Furthermore, China’s import of U.S. crude oil has continued to increase, averaging 330 thousand barrels per day in 2018. Almost all of the volume headed for China departs from the U.S. Gulf Coast region. For China, which is the biggest importer of oil in the world, U.S. crude oil is just a small share of its total portfolio. Saudi Arabia and Russia supply the biggest shares and could likely replace U.S. shipments of crude oil.

In a similar fashion, China was the third-largest destination for U.S. propane exports in 2017, behind only Japan and Mexico. More than half (53 percent) of U.S. LNG exports in 2017 were shipped to three countries: Mexico, South Korea, and China, with China accounting for 15 percent of U.S. LNG exports.

In addition, China also imports some coal from the United States, despite having a large domestic supply. In 2017, China received 3.2 million short tons of U.S. coal, accounting for 3 percent of total U.S. coal exports, making it the 10th largest destination. Replacing American coal with coal from other places could potentially hurt coal producing states like West Virginia. The threat of tariffs appears to have already dampened Chinese demand for U.S. coal. China National Building Material International, one of the biggest metallurgical coal importers in China pulled back from supply talks with U.S. coal broker XCoal and miner Consol Energy after China added coal and other energy products to a list of U.S. goods facing import tariffs.    

The table below lists the major energy products exporting states that are at most risk as a result of U.S.-China trade war. Based on trade data collected by the U.S. Census Bureau, in 2017 these states exported a significant share of energy products to China and other countries.