Shifting Global Trade Dynamics Toward China in the Oil and Gas Industry
Since the inception of Donald Trump’s second term as U.S. President, his administration’s aggressive trade policies, characterized by sweeping tariffs and an isolationist stance, have significantly reshaped global economic relationships. These policies, aimed at addressing perceived trade imbalances and protecting American industries, have inadvertently driven several countries to pivot toward China as a primary trading partner, particularly in the oil and gas sector. This shift has profound implications for global trade dynamics, energy markets, and employment in the U.S. oil and gas industry. This article examines the mechanisms behind this realignment, the specific impacts on the oil and gas sector, and the consequences for jobs and employment in the United States.
The Foundation of Trump’s Trade Policies
President Trump’s trade agenda, often framed as a means to restore American economic sovereignty and address trade deficits, relies heavily on tariffs as a tool to pressure trading partners. Since February 2025, the administration has imposed significant tariffs, including a 25% duty on imports from Canada and Mexico, a 20% tariff on Chinese goods (escalating to 145% in some instances), and a universal 10% baseline tariff on all imports, with higher rates for specific countries deemed to engage in “non-reciprocal” trade practices. These measures, justified under the International Emergency Economic Powers Act (IEEPA) to address issues like the U.S. trade deficit and the fentanyl crisis, have targeted key trading partners, including those integral to the North American energy supply chain.
Trump’s rhetoric emphasizes reciprocity and the protection of American workers, arguing that foreign trade practices have hollowed out U.S. manufacturing and energy sectors. However, these policies have sparked retaliatory tariffs and strained relationships with traditional allies like Canada, Mexico, and the European Union, while pushing some nations to seek alternative trade partners, notably China. The oil and gas industry, a cornerstone of global trade and U.S. economic interests, is particularly affected due to its reliance on integrated supply chains and international markets.
The Oil and Gas Industry: A Critical Sector Under Strain
The oil and gas industry is a linchpin of global trade, with the United States, Canada, Mexico, and China playing significant roles. The U.S. is a major consumer and producer of oil and gas, but it relies heavily on imports, particularly from Canada and Mexico, which supply over 70% of crude oil imports to U.S. refineries, especially in the Midwest. Canada exports 80% of its oil to the U.S., while Mexico sends 60% of its petroleum exports, primarily crude oil, to U.S. refineries. Conversely, the U.S. is a key supplier of refined oil products to Mexico, meeting over 70% of its domestic demand.
Trump’s tariffs, particularly the 25% levy on Canadian and Mexican imports and the 10% tariff on Canadian energy products, have disrupted these tightly integrated supply chains. While the administration carved out a lower 10% tariff for Canadian energy products to mitigate consumer backlash over gas prices, the broader trade war has increased costs for energy imports, raising concerns about fuel price hikes of up to 50 cents per gallon in the Midwest. These tariffs also threaten U.S. exports of refined products, as retaliatory tariffs from Canada, Mexico, and China target U.S. energy goods, including liquefied natural gas (LNG) and crude oil.
Pushing Countries Toward China
The imposition of U.S. tariffs has prompted several countries to reevaluate their trade relationships, with China emerging as a viable alternative partner due to its growing economic influence and strategic energy policies. China, the world’s second-largest economy, has reduced its reliance on trade over the past two decades, with imports and exports now accounting for only 37% of its GDP compared to over 60% in the early 2000s. This shift has been accompanied by increased domestic production and diversification of trade partners, including the European Union, Mexico, and Vietnam.
Canada and Mexico
The 25% tariffs on Canadian and Mexican imports have strained the U.S.-Mexico-Canada Agreement (USMCA), which underpins North American free trade. Canada and Mexico, heavily dependent on trade with the U.S. (67% and 73% of their GDP, respectively), face significant economic pressure from these tariffs. Canada’s energy sector, which sends 80% of its oil to the U.S., is particularly vulnerable. In response, Canada has imposed 25% retaliatory tariffs on $155 billion worth of U.S. goods, including energy products, while Mexico has signaled similar countermeasures.
These retaliatory actions have pushed Canada and Mexico to explore alternative markets. China, with its massive energy demand and strategic interest in securing stable supplies, is a natural partner. For instance, China has increased its imports of Canadian crude oil and LNG, leveraging its existing infrastructure and trade agreements to absorb supplies originally destined for the U.S. Mexico, facing a potential 16% GDP contraction due to U.S. tariffs, is also deepening trade ties with China, particularly in energy and automotive sectors. The depreciation of the Canadian dollar (8% since September 2024) and the Mexican peso (30% since April 2024) has made their exports more competitive in China, further incentivizing this shift.
Other Nations
Trump’s tariffs extend beyond North America, targeting countries like Venezuela and those purchasing its oil, with a 25% tariff on imports from such nations. China, which purchased 68% of Venezuela’s oil exports in 2023, is well-positioned to absorb additional supply as U.S. tariffs discourage trade with these countries. Similarly, nations like South Korea and Japan, which have faced U.S. tariff threats, are strengthening regional trade agreements with China to mitigate economic fallout. South Korea’s emergency support measures for industries impacted by U.S. tariffs signal a broader pivot toward Asia-centric trade networks, with China at the forefront.
China’s Strategic Response
China has responded to U.S. tariffs with targeted retaliatory measures, including 15% tariffs on U.S. coal and LNG, 10% tariffs on crude oil and agricultural machinery, and a 34% tariff on all U.S. exports starting April 10, 2025. These measures have hit U.S. energy exporters hard, particularly in LNG and refined products. However, China has also pursued strategic diplomacy, negotiating trade agreements with affected countries and relaxing restrictions on critical minerals like rare earths to entice partners. A temporary U.S.-China trade truce in May 2025 reduced tariffs to 30% on Chinese goods and 10% on U.S. goods, but the underlying tensions persist, encouraging countries to deepen ties with China for long-term stability.
China’s infrastructure investments, such as the Belt and Road Initiative, further facilitate this shift by providing alternative trade routes and markets for energy exports. For example, Chinese investments in Southeast Asian ports and pipelines enable countries like Malaysia and Vietnam to redirect energy exports originally bound for the U.S. to China. This strategic realignment underscores China’s growing influence in global energy markets, as it capitalizes on U.S. isolationism to expand its economic footprint.
Impact on the U.S. Oil and Gas Industry
The U.S. oil and gas industry faces significant challenges from Trump’s tariffs and the resulting trade wars. While the administration argues that tariffs will protect American jobs and spur domestic production, the evidence suggests otherwise, with potential job losses and economic disruptions outweighing short-term gains.
Supply Chain Disruptions and Cost Increases
The tariffs on Canadian and Mexican energy imports increase the cost of crude oil for U.S. refineries, which are optimized for heavier oils from these countries. Switching to lighter U.S.-produced oil is not a viable short-term solution due to infrastructure limitations, leading to higher refining costs and fuel prices. Tariffs on Chinese goods alone add $329 annually to U.S. household costs, with broader tariffs contributing to a nearly $1,300 per household tax increase in 2025. These costs ripple through the energy sector, raising operational expenses for drilling, refining, and distribution.
Retaliatory tariffs from China, Canada, and Mexico further complicate matters by targeting U.S. energy exports. China’s 15% tariff on U.S. LNG and 10% on crude oil reduces the competitiveness of U.S. energy products in one of the world’s largest markets. U.S. farmers and energy exporters, already hit by $27 billion in lost export sales during Trump’s first-term trade wars, face renewed pressure as China shifts to suppliers like Brazil and Canada.
Job and Employment Impacts
The employment outlook in the U.S. oil and gas industry is concerning. Tariffs, including Section 301 and 232 measures, will reduce full-time equivalent jobs by 142,000, with retaliatory tariffs costing an additional 27,000 jobs. A broader trade war escalation could lead to 320,000 to 732,000 job losses by 2025, with energy and agriculture sectors bearing the brunt. The 2018-2019 trade war with China already cost the U.S. 245,000 jobs, with manufacturing and energy sectors particularly affected.
In the oil and gas industry, job losses are driven by several factors:
- Reduced Export Opportunities: Retaliatory tariffs from China and Canada limit U.S. energy exports, reducing demand for workers in LNG terminals, refineries, and upstream operations. For example, China’s tariffs on U.S. LNG and coal directly impact jobs in states like Texas and Louisiana, where LNG export facilities are concentrated.
- Higher Input Costs: Tariffs on steel (50%) and aluminum (25%) increase the cost of pipelines, drilling equipment, and refineries, squeezing profit margins and discouraging investment in new projects. This could lead to layoffs in manufacturing and construction roles within the energy sector.
- Supply Chain Shifts: As Canada and Mexico redirect energy exports to China, U.S. refineries face supply shortages, potentially idling workers in refining and distribution. Tariffs on Canadian softwood lumber, a key input for energy infrastructure, will further strain costs and employment.
While Trump’s tariffs aim to re-shore manufacturing and energy jobs, the complexity of global supply chains undermines this goal. For instance, the 25% tariff on auto imports and parts, which rely on Canadian and Mexican components, indirectly affects the energy sector by increasing transportation costs for oil and gas. Tariffs on component parts, such as those from China, raise production costs without creating proportional domestic jobs, as automation and high-tech manufacturing require fewer workers than traditional industries.
Long-Term Economic Consequences
The long-term outlook for the U.S. oil and gas industry is bleak under sustained tariffs. A 1.3% reduction in U.S. GDP by 2034 is projected due to universal tariffs, with additional losses from retaliatory measures. A 15% reduction in U.S. imports could disrupt energy supply chains and increase consumer prices. A potential 2.8% GDP contraction in Q1 2025 is driven by trade war fallout.
These economic pressures could stifle investment in U.S. oil and gas exploration and production, as companies face higher costs and reduced market access. The shift of trading partners toward China further isolates the U.S., reducing its influence in global energy markets and potentially ceding strategic leverage to Beijing.
Global Implications and China’s Ascendancy
China’s ability to capitalize on U.S. tariffs stems from its strategic economic policies and global outreach. By reducing tariffs on select partners and investing in energy infrastructure, China is positioning itself as a reliable alternative to the U.S. China’s agreement to relax rare earth export restrictions in exchange for U.S. tariff reductions demonstrates its leverage in critical energy-related materials. Additionally, China’s increased infrastructure spending and consumer subsidies have sustained its GDP growth at 5.2% in Q2 2025, despite trade war pressures, making it an attractive partner for countries seeking economic stability.
The pivot toward China also reflects a broader realignment in global trade. As the U.S. imposes tariffs on allies like the EU and South Korea, these nations are joining China in regional trade agreements to hedge against U.S. protectionism. This trend weakens the U.S.-led trade order and enhances China’s role as a central hub in global energy markets.
Trump’s tariffs, trade wars, and isolationist policies are reshaping global trade dynamics, pushing countries like Canada, Mexico, and Venezuela toward China as a primary trading partner in the oil and gas sector. The disruption of North American energy supply chains, coupled with retaliatory tariffs, has increased costs for U.S. refineries and consumers while reducing export opportunities for American energy producers. The employment impact is significant, with potential job losses in the hundreds of thousands due to reduced competitiveness and supply chain shifts.
While the administration argues that tariffs will protect American workers and re-shore jobs, the evidence suggests that the oil and gas industry faces higher costs, reduced market access, and economic contraction. China’s strategic response, including targeted trade agreements and infrastructure investments, positions it to fill the void left by U.S. isolationism. As global trade realigns, the U.S. risks losing its dominance in energy markets, with long-term consequences for jobs, economic growth, and geopolitical influence. To mitigate these impacts, a more strategic approach—focusing on investment in high-tech energy sectors and cooperation with allies—would better serve U.S. interests than the current tariff-driven isolationism.