This Friday marks the day of trade sanctions between the United States and China. The tariffs include $34 billion worth of exports from each nation. The US tariffs imposed on China will include more than 800 products while Beijing will be targeting 545 American products. Later in the summer the United States is planning to impose $16 billion more in tariffs which China will respond to accordingly with another equal set of tariffs against US exports. With the looming tariffs on the horizon China may experience a few setbacks as they ambitiously try to increase bio-fuel usage in the country by 2020. Chinese government is planning to roll out E-10, gasoline containing 10 percent of ethanol coming from corn. However with tariffs near, the Chinese government wants to build new ethanol plants to aid in the production of E-10. COFCO (China's State Development and Investment Corporation) an agribusiness that has been awaiting approval of permits from the government on when they can begin, but will probably wait till the full force of these sanctions takes place. The amount of corn needed to start this roll out would be a quarter of the current annual demand, about 45 million tons. As Chinese corn stockpiles have dwindled in recent years, the corn used for the roll out would push up against demand for food supplies, which would leave little cushion for demand to increase. As the United States is one of China's top suppliers of corn imports, they will apply stiff tariffs on them starting Friday as well. These sanctions may drive Chinese corn prices higher in the short term as their stockpiles will continue to grow as domestic demand rises. One lingering question would be if corn becomes difficult/costly to acquire when does the conversation begin about potentially importing ethanol from the United States and what impact will these tariffs have on prices domestically in the U.S. as well as China?
An additional point is how LNG (Liquefied Natural Gas) was left off China’s tariff list. Beijing is also pushing a “war on pollution” looking to clear its skies of smog and coal pollution by implementing usage of natural gas in households and businesses. China receives very little LNG imports from the United States comparative to crude imports, but as trade tensions rise and they continue to clean up the pollution, we could see China using more LNG and imposing future tariffs on the product as a weapon or leveraging point in this upcoming trade war. Though they can do this it may not benefit them in the long term as the prices for LNG would rise drastically domestically and cost more for the United States to ship it driving costs up higher, so they could push back with the sanction but may end up hurting themselves ultimately. As these are just a couple of the many items discussed to be involved in this trade war, it is important to understand the intricacies of the impact on investments, economies and the companies whom are affected by these tariffs.
WTI Crude is down -1.29% today to a $73.62 as reports from the EIA (Energy Information Administration) reported crude stockpiles rose 1.2 million barrels comparative to analysts decline of 3.5 million barrels for the week ending June 29, 2018. Gasoline stockpiles fell by 1.5 million comparative with to an expected 817,000 barrel-drop. Distillate stockpiles rose by 134,000 barrels as opposed to the 545,000 barrel descent. August gasoline RBOB, is up .051% to $2.15 per gallons while Heating Oil is up .078% to $2.20 per gallon.