China U-turned on putting tariffs on American oil

in busy •  3 months ago

When all the sabre-rattling about tariffs was happening in June, China issued a list of products it would put tariffs on, if the Americans went ahead with tariffs on Chinese goods.

One the list, along with soybeans, was oil.

In August, when they finally issued retaliatory tariffs on the Americans, the oil was mysteriously exempt. Why?

China produces only a third of the oil it uses, so has to import the rest. The Chinese could import all their oil from Russia and Saudi - but they appear reluctant to become dependent on both those countries, especially as both have a reputation for playing games and withholding supply for political reasons. Therefore, starting in 2015, they began to diversify sources of oil, importing from the United States which was seen as reliable supplier.

In addition, with OPEC limiting global supply, and the yuan falling, there was a danger that if China put tariffs on American crude, they'd end up having to import it anyway, at a tariffed rate, on top of a weak yuan, hurting themselves.

So they've walked back.

China's strategy so far has been to let the yuan fall to offset tariffs, but this hurts them in key areas where they need to import goods priced in dollars. Oil is one such item. Grain is another. Poor harvests in the northern hemisphere due to the heatwave have raised the dollar price of wheat and corn - we shall have to see whether this forces China to walk back tariffs in that area too.

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