Bad Blood - Burgeoning U.S.-China Trade War Has Potential to Devastate Propane, Ethane Markets

Starting on April 10, China will enact an 84% reciprocal tariff on imports of U.S. goods. This increase was in response to the 104% tariff that the U.S. placed on imports of Chinese goods, which was subsequently raised to 125% by President Trump on April 9. China is likely to retaliate further. Unlike China’s February retaliatory tariffs of 10%-15% on U.S. oil and LNG, this time NGLs and all energy products are included. These higher tariffs have the potential to destroy propane and ethane exports from the U.S. In today’s RBN blog, we look at the potential impact of China’s reciprocal tariffs on the propane and ethane markets.

Note: This blog was reworked on April 9 to reflect the increased tariffs on U.S. goods into China and the lower prices and fees for LPG and ethane.

Like all of President Trump’s tariff wars, this front has been subject to rapid escalation. On February 1, he signed Executive Order 14195, imposing a 10% tariff on all Chinese imports, which took effect on February 4. That same day, China imposed a wide range of retaliatory tariffs against the U.S., including a 15% tariff on LNG and a 10% tariff on oil. At that point, there was no action on other energy products, so propane and ethane, along with other NGLs, were effectively exempt. But that was not the end of it. On March 4, the president increased the tariffs by another 10%. In retaliation, China announced a 15% tariff on U.S. goods. Then, as part of the “Liberation Day” proclamations of April 2, the U.S. tariff on Chinese goods was increased by another 34%, making the total tariff rate 54%. China followed with a retaliatory 34% tariff on all goods imported from the U.S., including oil, LNG, and all energy products.

The situation escalated again on April 8, when President Trump formalized a further increase of 50% on imports of Chinese goods to the U.S., to go into effect April 9 if China did not rescind its most recent increase, pushing the total tariff rate to 104%. China vowed not to back down. As proof of that, China announced an additional 50% tariff on U.S. imports on April 9, bringing the total tariff to 84%. On April 9, President Trump announced a pause on retaliatory tariffs for all countries except China, whose tariff he further increased to 125%. China is likely to increase its own retaliatory tariff on April 10. 

China imports very little crude oil from the U.S., and those volumes can easily be rerouted so that other countries replace U.S. barrels. China also does not import much LNG or refined products from the U.S. However, liquified petroleum gas, or LPG (propane and butane), plays a much larger role, ranking as the second-highest import into China by value, exceeded only by electronic products.

As a result, the tariffs have the potential to be a major disruptive force in global NGL markets. The U.S. sends about 20% of its propane exports to China. Most of that is used in the production of propylene via propane dehydrogenation (PDH). An 84% tariff on U.S. propane will devastate PDH economics, likely forcing China to drastically cut imports of U.S. propane. That, in turn, will place serious downward pressure on U.S. propane prices. China will try to replace as much U.S. supply as possible, but doing so would require uneconomic cargo rerouting — only possible if U.S. propane prices drop significantly at the point of origin to remain competitive.

The outlook for ethane is even more dire — at least for China. Chinese petrochemical crackers that use ethane as a feedstock rely exclusively on U.S. volumes. The tariffs will make U.S. ethane uneconomical, and these facilities will face two choices: absorb the cost or shut down. If shutdowns occur, the U.S. won’t be able to export those ethane volumes and will have to reject the surplus molecules into the natural gas stream. Almost 50% of U.S. ethane exports go to China, all used in ethylene production. The U.S. is China’s only possible source of ethane imports as it is the only country that exports waterborne ethane.

With that background out of the way, let’s look a little closer at the impacts on LPG and ethane.

LPG – Propane and Butane

China was the second-largest importer of U.S. propane in 2024 at 311 Mb/d (red bar in left graph in Figure 1 below). The amount of butane in 2024 was much smaller at 26 Mb/d, or 5% of total U.S. exports, making China the sixth-largest importer of U.S. butane (red bar in right graph). Total U.S. exports of LPG to China were 337 Mb/d.