How does LNG omission help China if the US trade war escalates?

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China's LNG Omission as a Strategic Lever in the US Trade War

China's decision to exclude liquefied natural gas (LNG) from its retaliatory tariffs on US products preserves a significant strategic option should the trade dispute with Washington intensify. This move underscores Beijing's dual objective: securing vital gas supplies for its ambitious pollution reduction program and retaining leverage in ongoing trade negotiations. By not imposing duties on LNG, China avoids immediately incurring higher costs and operational challenges associated with sourcing alternative supplies, while simultaneously signaling a potential future measure if necessary.
Preserving a Future Trade Weapon

The exclusion of LNG from the initial list of US goods facing tariffs, which includes items like pork and soybeans, allows China to maintain this commodity as a potential retaliatory tool. Should the trade conflict escalate, Beijing could choose to impose duties on US LNG, thereby increasing the pressure on Washington. This approach provides China with flexibility, enabling it to calibrate its response based on the evolving dynamics of the trade war.
Securing Energy Supplies for Environmental Goals

China's ongoing "war on pollution" necessitates a significant shift away from coal towards cleaner energy sources, with natural gas playing a crucial role. Millions of households and businesses are being transitioned to gas, a process that requires a stable and ample supply of the commodity. By keeping LNG off the tariff list, China aims to ensure uninterrupted imports, preventing a potential supply crunch similar to the one experienced the previous winter, which was exacerbated by cold weather and the accelerated coal-to-gas switch. Domestic natural gas demand already saw a substantial increase of 17.6% in the first five months of 2018, significantly exceeding earlier government projections.
Mitigating Opportunity Costs and Alternative Supply Limitations

Imposing tariffs on US LNG would present China with a considerable opportunity cost due to the limited number of major alternative suppliers globally. While the United States is a growing source of LNG, China's primary alternative suppliers are Qatar and Australia. A trade war that restricts US LNG imports would force China to rely more heavily on these other sources, potentially driving up prices and straining supply chains. Analysts project that Chinese imports of US LNG could grow substantially, from an estimated US$1 billion in 2017 to as much as US$9 billion within two to three years, indicating the increasing importance of this supply route.
Balancing Trade and Strategic Considerations

The potential increase in US LNG imports could also play a role in rebalancing China's significant trade surplus with the United States, a key point of contention in the trade dispute. By keeping LNG available, China maintains an avenue to adjust trade flows. Furthermore, from an energy security perspective, securing diverse sources of natural gas, including from the US, is viewed as essential for meeting domestic demand targets and ensuring stable energy consumption, which is projected to see natural gas account for a 10% share of the energy consumption basket.

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How does LNG omission help China if the US trade war escalates?

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