On April 11, 2025, China imposed an additional 125% retaliatory tariff on all U.S. imports in response to Washington's identical tariff move. With such hefty rates in place on both sides, trade flows between the world's two largest economies have theoretically vanished completely. In 2024, China imported fossil fuel-derived products from the U.S. valued at 23.08 billion yuan, making it the third-largest import category and accounting for 14.1% of total imports from the U.S. Key items included ethane, LPG, polyethylene (PE), ethylene glycol (EG), and EVA.
Feedstock Crunch Deepens as Tariffs Hit Ethane and LPG Supply Chains
Chemicals, particularly ethane and LPG, face the most direct blow.
- Ethane: China is fully dependent on U.S. ethane imports, with no alternative sources currently available. U.S. ethane imports have now surged to 5.53 million tonnes, covering 100% of China's ethane consumption.
>>> Under the newly imposed 125% tariff, additional import costs are estimated at 3,750–5,000 yuan/tonne based on a DES price range of 3,000–4,000 yuan/tonne-eliminating the profitability of ethane cracking.
- LPG: In 2024, China imported over 35 million tonnes of LPG, with 50% sourced from the United States. Following the implementation of the 125% retaliatory tariff, the additional cost for U.S.-sourced LPG is estimated to exceed 4,100 yuan/tonne.
>>> Most PDH units using LPG as feedstock were already operating at a loss before the new tariff. As of April 2025, prior to the policy announcement, the national average PDH operating rate stood at just 65.2%.
- Inventory Pressure Mounts: As of early April, nation-wide port inventories of LPG stood at approximately 45%, only sufficient to maintain operations through the end of May. A widespread feedstock shortage is expected to emerge starting in June, with a sharp rise in shutdown risks across the sector. Some companies holding U.S. cargo contracts have begun negotiating product swaps or cancellations. In the short term, alternative supplies from the Middle East and Russia are insufficient to fill the gap.
Naphtha Cracking Gains Ground as Tariff Pressure Shifts Cost Advantage
As ethane and LPG face steep cost increases under the new tariff regime, naphtha cracking is emerging as a more competitive alternative for steam crackers.
- Naphtha supply remains stable, particularly due to recent refinery expansions and supportive policies. Over the next five years, it is expected to become the major process route for new ethylene and propylene capacity additions.
- Between 2025 and 2030, China is projected to add 45.32 million tonnes/year of new or expanded ethylene production capacity, 55% of which will be based on naphtha cracking.
- For propylene, nearly half of the planned 20.64 mtpa new production capacity will also rely on naphtha as the primary feedstock.
Minimal Impact on Oil and Gas Imports
In contrast, the impact on crude oil and LNG imports is marginal and largely negligible:
- The United States ranks as China's 11th-largest crude supplier, accounting for only 1.7% of total annual imports-far behind Saudi Arabia, Russia, and other key exporters.
- For LNG, the U.S. share stands at just 5.4%, with most volumes under long-term contracts. The global LNG market offers ample alternative supply options.
(As previously noted in the February 2025 issue of China (Energy Transition) Policy Perspective ("China Imposes Additional Tariffs on U.S. Oil and Gas Imports, Minimal Economic Impact Expected"), the oil and gas sector remains largely insulated from tariff disruptions.)
Export Access to the U.S. Market Has Effectively Collapsed
In this round of trade war escalation, the average tariff rate imposed by the United States on Chinese goods has exceeded 100%, effectively shutting down China's export channel to the U.S. in theory.
- Structurally, China's previous export strengths to the U.S. were in textiles, furniture, footwear, and electronics-categories tied to end-consumer demand.
- Weaker demand in these sectors is expected to transmit upstream, weighing on chemical feedstock consumption and triggering a chain reaction across the industrial value chain.
- Domestically, manufacturers are now under pressure from both external shocks and sluggish domestic demand. In Q4 2024, final consumption expenditure contributed just 33.2% to GDP growth, below the 43.9% contribution from net exports during the same period.
According to Mysteel, a full shutdown of China's U.S.-bound exports could drag down export growth by at least 14.7 percentage points in 2025, lower GDP growth by more than 1.76 percentage points, and require an additional 3.6 trillion yuan in fiscal support to close the gap.
125% Tariff: Symbolism or Substance?
It is worth noting that prior to this latest round of tariff hikes, the U.S. had already imposed an average baseline tariff of 10.9% on Chinese goods. Since early 2024, rates have been gradually raised to 54%, effectively shutting down China's substantive export access to the U.S. market.
- Although the new 125% tariff has attracted greater media attention, it does not represent a critical inflection point for trade.
- Its main function lies in sending a clear political signal to the market and international community. The real determinant of industry expectations lies in whether upcoming U.S.-China negotiations ease tensions-and how long the current tariff regime remains in place.
In April, GL Consulting published a special edition of China (Energy Transition) Policy Perspective Spotlight - U.S.-China Tariff War Hits Ethane and LPG Hardest, Spurs Uptick in Naphtha Demand, analyzing the key impacts of the latest U.S.-China tariff escalation.
To get the detailed full text, send an email to glconsulting@mysteel.com.
