The U.S. presidential elections are four months away, but in some capitals, politicians are already getting nervous.
Donald Trump has vowed to slap tariffs on pretty much everything that comes into the country. But some are getting nervous in the U.S. as well because a tariff policy could upend energy commodities.
The tariff approach that Donald Trump has proposed as what seems to be the center of his trade policy is not new for him.
He has favored protectionist policies since his first term in the Oval Office, and there was no reason to expect he would suddenly change tack.
But there is worry that tariffs would ignite trade wars and U.S. exports would suffer—notably in energy.
Reuters’s Clyde Russell wrote this week in a column that the tariff approach would very likely affect U.S. energy exports to China—which is also the primary target of that tariff approach—in a negative way.
According to him, China could essentially ban all energy imports from the U.S. in response to the tariffs. That woulnd’t be good for oil or LNG prices.
Yet it would be good for Europe, which is another big importer of U.S. energy commodities and which will benefit significantly from lower commodity prices in a scenario where Trump imposes tariffs on Chinese imports, and China retaliates with a ban on U.S. oil and gas imports.
Europe, however, is in a precarious position because when Trump suggested he would put tariffs on all imports, he also meant European imports, apparently, because there is much stress in Brussels and plans are being devised on the EU’s response to a change in U.S. trade policies.
Per a Financial Times report from last month, the bloc is preparing two alternative responses to Trump’s trade policies, should he get elected. The first one is offering a trade deal to the new administration. The other is threatening retaliation.
“We have to show we are a partner for the US, not a problem,” a senior Brussels official told the Financial Times. “We will look for deals, but we are ready to defend ourselves if it comes to it. We won’t be guided by fear.”
It is, however, precisely fear that is urging officials on in their preparations for a second Trump presidency because they remember the first one and the tariffs that the U.S. administration slapped on some European imports at the time. Back then, Trump imposed tariffs on EU steel and aluminum. The EU retaliated with its own tariffs—on U.S. motorbikes and whiskey.
It will not be much different this time, either. The EU cannot afford to threaten that it would stop buying U.S. liquefied natural gas or oil in order to retaliate for potential tariffs. That move is possible for China because China has access to alternative energy suppliers, notably Russia. The EU does not. Effectively, the EU does not have a whole lot of retaliation options against the U.S.—especially in energy. Yet U.S. energy producers could find themselves in trouble, too.
Reuters’ Russell suggests a hypothetical situation, in which all of the United States’ trade partners retaliate against Trump tariffs with their own. This, Russell writes, would make U/S. energy exports more expensive and force producers to offer discounts in order to stay in the global oil and gas trade game.
Yet the chances of such a scenario actually materializing are rather slim. For starters, as noted, some of the U.S.’ largest buyers do not really have an alternative supplier, so they would simply have to keep buying U.S. oil and gas as before—tariffs or no tariffs.
This is true for the EU as well as Japan, which is bound by G7 sanctions against Russia to minimize its imports of Russian energy commodities. What’s more, shunning U.S. commodities by those who can afford to do it, such as China, would pressure the prices of U.S. oil and gas, making those more palatable even with tariffs. To see what will actually happen in the event of tariffs, we’ll have to wait until November.