Chinese Tariffs on U.S. LNG: Trade and Price Implications

The US-China Tariff Tussle

Donald Trump was elected president in November 2024, and he ran a campaign heavy on tariffs. On April 2nd, 2025, he announced his most sweeping measures: a 10% baseline tariff on nearly all countries, plus additional country-specific tariffs based on trade balances between the US and respective countries. Even though these tariffs excluded oil and petroleum products, they caused a global market crash which inadvertently affected the oil market. Looking at crude oil, both Brent and WTI fell by more than $10 just a week after it was announced. This underlined how tariffs, even when excluding energy, can trigger broader commodity shocks. Along with impacting energy prices, such tariffs have also affected the trade flow of energy products worldwide.

Earlier in his term, Trump announced a series of tariffs on February 1st 2025 to target “fentanyl trafficking” against Canada, Mexico, and China, which came into effect on February 4th 2025. A week later, China announced a retaliatory 15% tariff on US LNG. This resulted in a significant change in the flow of LNG out of the US. In late 2024, China was importing 500-800 KT of LNG from the US monthly. However, after Trump’s election victory, US LNG flows to China declined sharply, eventually stopping altogether once the tariff was enacted. 

Source: General Administration of Customs, China

Disruptions to Trade Flows and Prices

An outcome from the tariff was an overall shift of US LNG from East Asia to Europe. This was enabled by US LNG contracts lacking destination restrictions, granting LNG cargoes with the flexibility to be rerouted. The spread between European LNG and Asian LNG is close to zero, so it only makes economic sense to deliver there as opposed to delivering to China and paying an extra 15%. As a result, most US LNG cargoes that were planned for delivery in China were diverted to Europe. 

Source: Trademap, International Trade Centre

The tariff also resulted in an atypical price pattern emerging between natural gas and LNG. Their prices are fundamentally positively correlated because natural gas undergoes liquefaction to produce LNG. Henry Hub (HH) NG is a benchmark for the price of NG in North America, while Japan Korea Marker (JKM) LNG is the benchmark for LNG in East Asia. HH NG and JKM LNG are therefore related through American LNG exports into Asia.

The chart below displays their 5-year historical trends, and illustrates that their prices usually move in the same direction. A notable exception to this is in early 2022, with the energy crisis in Europe and lockdowns in China. At that time, the correlation between their prices was negative, and the same thing happened immediately after China implemented the tariff on 10th February.

Mechanism Behind the Price Movements

On the LNG side, we see JKM falling. As mentioned earlier, US LNG cargoes were rerouted from China to Europe. This results in more delivered LNG in Europe than anticipated, exerting a downward pressure on LNG prices globally due to arbitrage flows.

On the natural gas side, HH NG has been rising due to domestic natural gas tightness in the US. Throughout 2024, production of natural gas saw basically no growth, when previously it had 4-5% growth year-on-year. Considering that US natural gas consumption has seen constant growth every year in the same period, this indicates that natural gas supply in the last year has not kept up in pace with demand.

Source: US Energy Information Administration

Additionally, the US also experienced a particularly cold winter, with a harsh cold snap in late January 2025. This resulted in much higher energy consumption for heating and power. As a result, the US withdrew 25% more from their underground natural gas storage this winter as compared to previous winter. In tandem with the flat production growth, the US had a particularly tight natural gas supply environment in late 2024 and early 2025. This results in HH NG prices surging in the same window that JKM LNG prices are falling due to tariffs.

Source: US Energy Information Administration

The resulting divergence of HH NG and JKM LNG prices is atypical, but unlikely to exist. The tariffs disrupted US LNG trade flows, creating a short-term reallocated shock rather than a structural break. It does not change that natural gas is fundamentally linked to LNG as a feedstock. When the LNG market rebalances itself out, we should see that relationship re-emerge.