Product streams at danger needs to Trump trigger tit-for-tat trade war: Russell

Much of the debate surrounding the ramifications of a possible second U.S. presidential term for Republican politician Donald Trump has concentrated on what may take place to the U.S. and global economies.

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

However for commodities, the bigger threat of a Trump go back to the White Home is the reaction the remainder of the world is likely to have to the imposition of U.S. trade tariffs.

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

Any unilateral action by Trump is therefore 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 unavoidable that U.S. trading partners react to Trump's proposed actions by putting tariffs on imports from the United States, the main question is then what type will they take?

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

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

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

U.S. exports of petroleum to China were 10 million barrels in July, according to commodity experts Kpler, which figure is expected to rise to 16.58 million barrels in August, which would be the most considering that April 2023.

For the first 8 months of this year U.S. crude exports to China are tracking at about 309,000 barrels daily (bpd),. which represents just about 3% of China's total imports, but. represent about 7.5% of total U.S. deliveries.

Simply put, it would likely be relatively simple for China to. stop purchasing U.S. crude and find alternative suppliers, such as. Angola and Brazil.

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

Much will depend on whether other nations put 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. similar impost on their exports to the United States.

The European Union, Japan and South Korea typically account. for about 60% of U.S. unrefined 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, but. force U.S. companies to either offer discounts to keep their. rates competitive or lower output.

US LNG EXPOSED

U.S. LNG exporters may be more susceptible than crude. producers, given they have no alternative markets other than. exports.

For China, changing U.S. LNG would be more challenging than. changing U.S. crude, but still likely manageable, offered the relatively. little percentage of U.S. LNG in its overall imports.

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

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

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

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

This means that buyers of U.S. coal could most likely find. alternative providers for the small volumes involved, but U.S. exporters might struggle to discover brand-new markets should a majority of. its current purchasers impose retaliatory tariffs.

In general, the image that emerges is among substantial. vulnerability for U.S. energy exporters if we do see another. trade war, offered how nations could respond to the tariffs. presently being proposed by the previous president's camp.

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

But the danger stays meaningful. In 2022, Russia's invasion. of Ukraine showed us what can happen when a political occasion. roils energy markets.

If Trump is chosen and does embark on a trade war, the. disturbance may not be quite on that scale. However commodity flows -. and thus a big part of the global economy - might be affected. if the market has to adjust to an unforeseeable political dynamic. once again.

The opinions expressed here are those of the author, a writer. .

(source: Reuters)