China has reiterated its intention to respond to the US tariff hike on imports of $200 billion worth of Chinese goods to 25% that kicked in on Friday but the lack of details about Beijing's next moves has left market participants hanging.
Crude oil futures were higher in mid-afternoon trade Friday, with July ICE Brent crude futures up 41 cents/b from Thursday's settle at $70.80/b and the NYMEX June light sweet crude contract gained 48 cents/b (0.78%) to $62.18/b.
The US-China trade talks concluded Thursday evening in Washington without a firm outcome and were scheduled to continue on Friday. The United States Trade Representative's office proceeded with increasing tariffs on $200 billion worth of Chinese goods to 25% from 10% as announced mid-week.
"China deeply regrets that it will have to take necessary countermeasures," a spokesperson for the Ministry of Commerce said on Friday, in response to the official implementation of the tariff increase, but did not give details.
"The eleventh round of China-US high-level economic and trade consultations is underway. It is hoped that the US and the Chinese side will work together and work together to resolve existing problems through cooperation and consultation," the ministry said in a statement.
Previous rounds of retaliatory tariffs by Beijing were announced well in advance of implementation with detailed lists of goods and commodities that would be impacted. Beijing's delayed response this time is a departure from its previous reactions and created uncertainty in the market, especially with regard to crude oil and LNG trade between the two countries.
"I believe that the US have missed their optimal point in these negotiations with the advantage having swung towards China. The improvement in the Chinese economy has enabled their negotiators to take a harder line in discussions, which has led to this new escalation," Chris Midgley, Global Director of Analytics, S&P Global Platts, said.
He said in the meantime US exports of LNG and oil are increasing and will continue to grow, and are likely to be subjected to high tariffs, which will make them uncompetitive into the largest energy importer, potentially putting pressure on them over other supplies from alternative origins.
"The tariffs have already impacted petrochemicals from the US with imports into China dropping significantly after being imposed with a 25% tariff," Midgley said.
"We believe that China will retaliate in kind, with $30 billion worth of tariffs on US goods. This could happen either today or tomorrow," ING Economics said in a note. It said China could also delay this tariff until Vice Premier Liu He returns to China.
"In any event, this will happen very soon," ING Economics said, adding that China could also make life more difficult for US companies operating in China, possibly by stepping into merger and acquisition deals, but it will stop short of selling US Treasuries.
The lack of offtake and equity deals by the Chinese in the LNG space has raised concerns about whether US LNG export project development could be impacted, and fall behind other regions like Russia, as China is expected to surpass Japan as the world's biggest LNG importer within a decade.
Charlie Riedl of the Center for Liquefied Natural Gas said the general sentiment from his organization's members was disappointment with the current direction, and the sector was awaiting details of expected Chinese countermeasures.
In an interview Thursday afternoon, Josh Zive, a trade attorney with Bracell, said "It's now in all likelihood a question of how long [the tariffs] are in place."
"The fundamentals have not changed. We know China is willing to go pretty far but not as far as the hawks on intellectual property, and we don't know how far [the administration] will go to roll back existing tariffs" as part of a deal, he said.
