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The US-China Trade War has heated up again as both the Trump and Jinping administrations ramped up tariffs against each other in August 2019, though China’s new tariffs on the previously untouched oil industry may have levelled the playing field. Find out more…
The prospect of peaceful trade talks, the hopes for which began at the 2019 G20 Summit, may be long gone after new developments in the nearly two year-long Trade War have had tensions flaring once more. Despite a reported temper tantrum, US President Donald Trump has agreed to meet with Chinese President Xi Jinping later in September, but for the time being, the latest bout of tariffs are wreaking havoc on both the American and Chinese economies, and on countries around the world. China’s newly imposed tariffs on the oil industry – one of the only industries that have not been directly implicated or targeted – have seemingly nullified the upper hand Trump appeared to have, and the rest of the world is already starting to feel the effects of the latest piece placed on this Trade War chess game. What made Jinping implement these tariffs?
August 2019 saw the greatest collapse of trade talks between the US and China since the US initiated a massive 25% tariff increase on imported goods in May 2019. In a single month, the decisions made by Trump and his administration escalated the Trade War, ultimately provoking the response they eventually received from China. At the start of the month, trade talks taking place in Shanghai fell apart after Trump accused China of not keeping its promise to purchase more US farm products, and Trump implemented 10% tariffs on an additional $300 billion worth of Chinese imported goods. Essentially, these new tariffs now cover all goods imported from China, including clothing, electronics, food and even nappies. Shortly after, the US government and its Treasury accused China of being a currency manipulator – the instance of a country’s government engaging in currency intervention whereby a central bank will buy or sell foreign currency in exchange for domestic currency, which may influence the exchange rate and relevant commercial policies. Not long after that, Trump initiated more tariffs – 10% on $112 billion worth of goods effective from 1 September 2019, and 10% on the remaining $160 billion worth of goods, to come into effect on 1 December 2019. This saw a total political breakdown between the two countries, and – about ten days later – prompted $75 billion in new tariffs by China. President Trump, predictably, took to Twitter to express his feelings…
For many years China (and many other countries) has been taking advantage of the United States on Trade, Intellectual Property Theft, and much more. Our Country has been losing HUNDREDS OF BILLIONS OF DOLLARS a year to China, with no end in sight….
— Donald J. Trump (@realDonaldTrump) August 23, 2019
On 23 August 2019, China announced its intention to impose retaliatory tariffs on $75 billion worth of US goods – resulting in as much as 10% over and above existing rates. Inclusive in the new tariffs is a 5% tariff on US crude oil, targeting the oil industry for the first time since the Trade War began well over a year ago. This is a blow to US oil exports, which is already undergoing strain in light of the threat of Hurricane Dorian, a Category 2 storm that’s reached speeds of 241kpm. The storm has already ravaged the Bahamas and may have devastating effects on the US coastline, though chances that it will head to mainland America are low for now. Energy companies in America have, however, stopped drilling rigs for the ninth month in a row, seeing US crude output falling.
In addition to their retaliatory tariffs, China has also lodged its third lawsuit against the US at the World Trade Organisation (WTO), challenging US tariffs imposed on Chinese goods. The US government has 60 days to settle this dispute, though in previous cases, it requested that tariffs should not be judged by the WTO. Donald Trump remains adamant that America is ahead in this political standoff, despite growing evidence that the Trade War has had devastating effects for both countries and the global economy.
Trump has remained consistent in one regard – his belief that it will benefit the American people to decrease the country’s reliance on China for goods and products. However, economists at University College London and the London School of Economics calculate that Trump’s newest tariff could cost the average American household about $460 (roughly R6900) over a one-year period.
To mitigate the increased costs for the consumer, many of the new tariffs are delayed until December 2019 (after the holiday shopping season, which encompasses Thanksgiving, Black Friday and Christmas). Trump has tried to maintain a strong façade in the public eye, particularly on Twitter…
We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of “ripoff USA”($600 B/year),16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….
— Donald J. Trump (@realDonaldTrump) September 3, 2019
The new tariffs have had a ripple effect felt globally, but China’s oil tariffs in particular have had a tumultuous impact on global markets and on the oil industry. Oil prices have since weakened and concerns grow once again about waning global demand. The US especially is suffering as the new tariffs effectively close off the country from the planet’s biggest oil and energy market – China!
But while the trade war rages on, both nations press ahead with other plans – the US with trying to find alternative markets for its exports (for example, a trade deal with the UK post-Brexit is a major talking point) and China finding alternative oil suppliers, like Nigeria, Venezuela and (much to US chagrin) Iran.
In the meantime, the oil industry’s hopes lie with members of the Organisation of the Petroleum Exporting Countries (OPEC). OPEC’s oil output rose for the first time in 2019 due to greater supply from Iraq and Nigeria. Until the US and China resume trade talks later in September 2019, the world waits with bated breath to see what’s next – with neither the US nor China yet to give any indication of backing down.
As leaders in the oil and energy industry, SA Oil has closely tracked the developments of the Trade War and remains fully equipped to supply fuel oil products to industry in Sub-Saharan Africa. Partner with us for reliable fuel solutions – get in touch today.