The fragile balance in US-China petrochemical trade is increasingly under threat, highlighting how China’s reliance on American feedstocks complicates the broader geopolitical conflict, despite Beijing’s dominance in rare earth metals exports.
In 2024, China imported over 565,000 barrels per day of petrochemical feedstocks from the United States, valued at more than $4.7 billion, according to the US Energy Information Administration. This trade dwarfs the $170 million worth of rare earth metals the US imported last year—around 70% of which originated from China, per the US Geological Survey.
These figures underscore the deepening interdependence between the two economic giants, forged by decades of increasingly intertwined trade. China controls the refining of many metals critical to global industry, yet it remains dependent on niche chemical feedstocks from the US, which are challenging to source elsewhere.
Naphtha remains China’s primary raw material for producing base chemicals that feed into everyday products like electronics and textiles. Some Chinese plants can switch to cheaper propane when economically viable; however, propane dehydrogenation (PDH) facilities, crucial for producing propylene, cannot process naphtha alternatives. The US accounted for more than half of China’s propane imports in 2024, emphasizing its strategic role in China’s petrochemical supply chain.
US producers have increasingly relied on China as a major buyer of their expanding feedstock volumes, whose market value has nearly quadrupled since 2020. Notably, China is expected to contribute nearly half of the global increase in mixed-feed ethylene and propylene production capacity slated to come online over the next four years, according to BNEF data.
Trade War Pressures and Tariff Retaliations
However, this mutually beneficial trade dynamic faces disruption. Following tariffs imposed by the Trump administration in April, China retaliated with steep duties, including a 125% tariff on US feedstocks such as propane and ethane. This effectively rendered US feedstock imports economically unviable.
Finding alternative propane suppliers is challenging, as Middle Eastern producers predominantly export to India, South Korea, and Japan. While some rerouting is possible, limited alternatives may enable Middle Eastern suppliers to demand premium prices, squeezing margins for Chinese PDH operators like Hengli Petrochemical. These companies, already grappling with narrow profits, may be forced to curtail or temporarily shut production.
Complex Trade Negotiations and Export Restrictions
In an attempt to ease tensions, China quickly lifted tariffs on US ethane as trade talks began. Yet, the US government has responded with its own restrictions. The Bureau of Industry and Security at the US Department of Commerce recently denied export licenses for ethane shipments to China, citing concerns over potential military applications or diversion.
China’s ethane processing capacity is modest compared to its naphtha and propane operations, but nearly all its ethane imports come from the US. These export controls are set to significantly impact key plants in Lianyungang and Tianjin, operated by major firms like Satellite Chemical, Sinopec, and INEOS. Singapore-based SP Chemicals, which sources much of its feedstock from US exporter Enterprise Products Partners, will also feel the effects.
As the trade conflict intensifies, the petrochemical sector emerges as a critical frontline, with both countries facing significant economic fallout. The intertwining of trade dependencies and national security concerns suggests that commodities will remain a volatile flashpoint in US-China relations for the foreseeable future.
