China’s countermeasures against the US’s tariffs were less than expected by Morningstar Asia equity market strategist, Kai Wang.
On Feb 4, China issued its own set of levies against US goods in retaliation to US President Donald Trump’s tariffs. Beijing imposed a 15% levy on US coal and liquefied natural gas (LNG) as well as a 10% tax for crude oil, farm equipment and certain vehicles including trucks and big-engine sedans from the US.
To Wang, the moves were “largely symbolic” as the move would only affect some 12% of total imports from the US.
Instead, other sectors such as Japanese industrial or agricultural machinery firms like Komatsu and Kubota could benefit given the incremental tariffs on US machinery.
“A key takeaway from this development, at least for now, is that fundamentally there is less risk implied than expected before,” Wang writes in a note dated Feb 4. “However, escalation of the trade war remains a risk given Trump’s history of unpredictable behaviour. Therefore, the volatility risk remains on the table for the next four years at least.”
Lee Chokwai, director at Morningstar, believes that the 10% tariffs on US LNG will have “minimal impact” on the Chinese oil and gas companies under his coverage.
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“According to the US Department of Energy, from January to November 2024, China accounted for only about 5.2% of US-produced LNG exports,” Lee points out.
While companies like China National Offshore Oil Corporation (CNOOC) and Sinopec signed long-term contracts with US LNG exporters, the volumes are “relatively small” compared to their total natural gas production, he notes.
For instance, CNOOC has two contracts with US LNG exporter Venture Global: one is for 500,000 metric tons (MT) per year over three years and another for 2 million MT per year for 20 years. In comparison, the company’s natural gas production for the first nine months of 2024 totalled 14 million MT.
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Wang believes the 10% tariffs could worsen the current macroeconomic headwinds in China, although he expects that the immediate consequences are limited to selected industries under his coverage. These include home appliances, home furnishings, lithium batteries and electric vehicles (EVs), given their sizeable US revenue exposure.
That said, he also sees the ongoing uncertainty as a “headline risk” that could create volatility for the Chinese market.
Looking ahead, Wang sees potential for talks between the US and Mexico to “mitigate some risks” but he remains cautiously optimistic due to the lack of specific details.
