As Trump makes his mark for a second time, his trade policies threaten to disrupt global LPG trade and put an end to recent market stability
Donald Trump has returned for his second term as US president having campaigned on promises to impose import tariffs on goods from China, Canada and Mexico. But a presidential memo issued on his first day in office indicates a temporary reprieve, stating that these measures will only be enacted having been scrutinised by the Commerce and Treasury departments and US Trade Representative (USTR).
Some might question whether this signals a willingness to reconsider tariffs based on input from civil servants. What we know is that Trump has stated he is "thinking" about imposing 25pc tariffs on Canada and Mexico from 1 February. For China, he has asked the USTR to assess Beijing's performance since the 2020 trade deal that ended the 2018-20 trade war initiated in his first term. Notably, he has yet to mention the 60pc tariff on Chinese goods or specify a timeline.
The president has also said he wants to reverse the US trade deficit with the EU, potentially through tariffs or by increasing energy exports to the bloc. But this appears to be a lower priority for now. Whatever his trade approach turns out to be, it does not appear to have been mollified by his latest ascension and the responsibilities of office. "Tariffs are going to make us rich as hell… It's going to bring our country's businesses back that left us," he said on 20 January.
China, Canada and Mexico play integral roles in US LPG trade, and any disruption to flows to and from the US could significantly impact the global market. China poses the greatest risk as the world's largest propane importer dependent on the world's largest propane exporter, the US. Since Trump's first term, a surge in US propane exports has fuelled China's rapidly expanding propane dehydrogenation (PDH) sector. China's imports of LPG by value were $10.5bn in 2023, customs data show, making it the second-largest US goods arriving based on cost. China received about 17mn t of US propane last year, 72pc of the total, Kpler data show.
The 2018-20 trade war forced LPG markets to adapt after China imposed a 25pc import tariff on LPG in retaliation for US tariffs. US propane exports were redirected to Japan, South Korea and India, and the Middle East stepped in to supply China. Chinese firms eventually circumvented these tariffs through still-in-place waivers after the deal between Washington and Beijing was reached in 2020. China's propane import demand has surged since 2018, to 23.5mn t last year from 13mn t in 2018. India's LPG imports from the Middle East have also grown dramatically, rising to 21.4mn t from 13.2mn t during the same period. The upshot is that the Middle East will be unable to cover China's shortfall if US arrivals stopped.
The Chinese PDH sector in particular faces an uncertain future. After years of rapid expansion, it has recently grappled with oversupply in propylene and derivatives, coupled with weak downstream demand. Yet PDH capacity is still due to grow again this year. Something will need to give if tariffs on propane return.
Tariff thy neighbour
Canada's LPG production is growing and the US remains its largest buyer — as it slowly builds export capacity on its Pacific coast for northeast Asian buyers. Just what would happen to the 5.5mn-5.9mn t/yr of LPG that crosses the border into the US is unclear should it end up with a 25pc tax that shuts the arbitrage. Mexico relies heavily on US LPG. The country's LPG consumption of about 10mn t/yr is supplied by 6.6mn t/yr of imports from mainly the US by rail and sea. But it seems less likely to retaliate than China, and LPG might be spared as it is mostly used for residential cooking, making any act that raises prices politically imprudent. Still, US tariffs would strain trade relations and create unpredictable ripple effects.
Whatever direction Trump takes, the stakes for the global LPG market are high. And the stability and price predictability that these markets have enjoyed in recent years might quickly become a thing of the past.
