Product streams at risk should Trump spark tit-for-tat trade war: Russell

Much of the dispute surrounding the ramifications of a possible 2nd U.S. presidential term for Republican Donald Trump has focused on what may take place to the U.S. and international economies.

Trump's plan to impose tariffs of 10% on virtually all imports into the United States, and as much as 50% on those from leading trading partner China, have actually raised the spectre of greater inflation and rates of interest, and a less competitive market.

However for products, the larger danger of a Trump return to the White House is the reaction the remainder of the world is likely to have to the imposition of U.S. trade tariffs.

Political leaders across the globe will be unable to sit idly by if Trump locations barriers on their exports to the United States.

Any unilateral action by Trump is hence most likely to be met by retaliation from U.S. trading partners, even if they are erstwhile political allies, such as countries in Europe and some in Asia, such as Japan, South Korea and even India.

If it's inescapable that U.S. trading partners react to Trump's proposed actions by putting tariffs on imports from the United States, the primary concern is then what type will they take?

While major U.S. exporting business such as plane maker Boeing will have cause for concern, a far easier target for retaliation is likely to be U.S. commodity exports.

The United States is the world's biggest exporter of liquefied natural gas (LNG), and ranks fourth globally for exports of petroleum and all grades of coal.

A major buyer of U.S. products is China. If Trump were to enforce tariffs of 50% on its exports, Beijing could efficiently restriction all product imports from the United States, either formally or informally.

U.S. exports of crude oil to China were 10 million barrels in July, according to product analysts Kpler, and that figure is expected to rise to 16.58 million barrels in August, which would be the most because April 2023.

For the first eight months of this year U.S. unrefined exports to China are tracking at about 309,000 barrels daily (bpd),. which represents just about 3% of China's total imports, however. represent about 7.5% of total U.S. deliveries.

Simply put, it would likely be fairly easy for China to. stop buying U.S. crude and discover alternative providers, such as. Angola and Brazil.

But how simple would it be for U.S. oil manufacturers to change. the loss of Chinese purchasers?

Much will depend upon whether other countries place tariffs on. U.S. commodity exports.

Envision if the European Union, Japan and South Korea all put. a 10% tariff on U.S. crude in retaliation for Trump putting a. comparable impost on their exports to the United States.

The European Union, Japan and South Korea usually account. for about 60% of U.S. crude exports.

By putting tariffs on U.S. crude, LNG and coal, the rest of. the world could keep U.S. energy exports in the market, however. force U.S. companies to either deal discount rates to keep their. prices competitive or lower output.

United States LNG EXPOSED

U.S. LNG exporters might be more vulnerable than crude. producers, given they have no alternative markets aside from. exports.

For China, changing U.S. LNG would be more tough than. changing U.S. crude, but still most likely doable, provided the relatively. little proportion of U.S. LNG in its total imports.

In July, China's imports of U.S. LNG were 670,000 metric. tons, or about 10.5% of the monthly overall of 6.39 million.

For the United States, exports to China represent just about. 8% of its overall LNG shipments. However if Japan and South Korea are. added in too, then exports to the 3 main Asian buyers. increase to about a quarter of the total, based upon U.S. deliveries in. June of this year.

If tariffs were put on U.S. LNG by the North Asian. importers, it would put pressure on U.S. business to lower. costs to compensate.

U.S. coal exports have actually balanced about 7.5 million loads a. month for the first seven months of the year, however there is no. dominant buyer. Rather there is a broad range of importers that. all purchase reasonably small volumes.

This suggests that buyers of U.S. coal could probably find. alternative providers for the small volumes involved, but U.S. exporters may have a hard time to discover brand-new markets must a bulk of. its existing purchasers impose retaliatory tariffs.

In general, the photo that emerges is one of significant. vulnerability for U.S. energy exporters if we do see another. trade war, provided how countries might respond to the tariffs. presently being proposed by the previous president's camp.

Naturally, Trump still has to overcome most likely Democratic. prospect and existing vice president, Kamala Harris, in the. November election, and after that in fact follow through on what is. likely to be a widely-criticised trade policy.

However the risk stays significant. In 2022, Russia's invasion. of Ukraine showed us what can occur when a political occasion. roils energy markets.

If Trump is elected and does start a trade war, the. disruption may not be quite on that scale. However product flows -. and hence a large part of the global economy - might be affected. if the marketplace has to adjust to an unpredictable political dynamic. when again.

The opinions revealed here are those of the author, a columnist. .

(source: Reuters)