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The ongoing tariff wars and retaliations have created havoc globally, with the LNG market expecting changes in trade patterns. While the US-China trade war appears to have minimal impact on LNG shipping (at least in 2025), the repercussions will be prominent in case of an extended war, denting LNG shipping in the long run, with future trade, shipping rates and planned capacities bearing the brunt. Lower tonne-mile demand will worsen the ongoing downturn in LNG shipping rates, aggravating oversupply conditions and weathering the expected recovery in rates towards 2027-28.

US-China trade war reignites

As the Trump administration imposes steep tariffs on China, with the latter countering back, we expect global LNG trade to feel the heat. The face-off between the two powers will challenge the status quo of current LNG trade dynamics and is becoming evident faster than expected as China has halted imports of US LNG, imposing a retaliatory tariff of 15% on US LNG and has begun to resell US cargo to Europe. Minding that China’s increasing domestic production, robust Russian gas supplies via Power of Siberia and lower imports in 1Q25 (down 24% YoY) have also played a crucial role in supporting the country’s stance.

Although China continues to abstain from US LNG, trade patterns will change, especially once China’s demand recovers during summer. Under such circumstances, China’s reliance on other destinations, such as Qatar, Russia, and Australia, will increase further.

The question remains: How much US LNG will need to be substituted in case of a US-China Trade War II?

We don’t expect a significant change in LNG trade patterns in 2025, as the US accounts for about 5% of China’s total LNG imports (based on previous year trends). This share is unlikely to change this year (in case of no trade war) as 1) no new supply deal is expected to start, 2) more spot cargo could reach China, but recovery in European demand will keep this in check, 3) China’s import growth will be steady (citing slow economic recovery, lower imports in 1Q25 and robust Russian gas supplies via Power of Siberia).

Thus, the US will supply China with about 5-6 million tonnes of LNG in 2025 (which translates into about 80-90 shipments) – accounting for about 5-6% of the country’s total LNG imports. However, looking at the current developments – the likelihood of this scenario seems unlikely.

In case of a trade war, China will substitute US cargo with other sources such as Qatar, Russia and Australia. However, this will curtail shipping demand since longer US-Asia voyages (via COGH) will be cut short as US-China trade plummets. About 80-90 shipments from the US to China via the COGH will be affected in case of a trade war.

Figure 1: US-China LNG trade cycle

Source: Drewry Maritime Research

Impact on tonne-mile demand: A loss of 45 billion tonne-mile is likely

According to our projection, if the US-China trade remains intact, about 80 billion tonne miles will be generated (considering the US-China voyages via COGH). If China needs to substitute US LNG with Qatar, Australia and Russia, the total tonne-mile generated will be around 35 billion tonne miles, indicating a potential loss of 45 billion tonne miles for LNG shipping (∼45-50 LNG shipments).

Assumptions:
1. US-China trade is via the Cape of Good Hope.
2. Russia-China trade will be from Sakhalin.
3. Qatar, Russia and Australia will substitute for 40%, 40% and 20% of US LNG to China (∼5-6 million tonnes).

Source: Drewry Maritime Research

However, a complete loss could be diminished (but to a certain extent) with some rebalancing in the total tonne mile generation, with more US cargoes reaching other Asian countries when demand subsides in Europe and China continuing its halt over US LNG. Nonetheless, the increase in US-Asia trade in 2025 will hinge on other factors as well, such as LNG demand, US-Asia arbitrage, prices and competition from other energy sources.

US-China-Europe – Trilemma

Another change in sight as the US-China trade war escalated: China went from being Europe’s competition to supplier.

China's decision to impose a retaliatory tariff on US LNG may inadvertently benefit Europe. As the leading global importer of LNG, China once considered the US its fourth-largest supplier. However, Chinese buyers holding long-term contracts for US LNG have started reselling these shipments to European clients. The flexibility of US LNG contracts (for most buyers) allows buyers to adjust cargo destinations, enabling them to navigate tariff challenges and redirect flows to more lucrative markets, particularly in Europe. Europe is taking centre stage in receiving LNG from the US and China, so European LNG prices will ease. However, this new settlement will be challenged once the continent’s demand subsides, with Europe’s restocking season ending and China’s domestic LNG demand soaring, especially during summer and if its economy revives.

A more profound impact is likely in future

The US-China tariff war and stiff strategic competition will impact the LNG trade, with more profound changes likely, especially next year, as large contractual volumes signed between the US and China are likely to start in 2026. The reduced trade between the two countries will subside the expected rise in LNG shipping demand with the start of new contracted supplies while new LNG terminals become operational in the US.

Figure 2: US-China contracted supply start-year

Source: Drewry Maritime Research

According to Drewry’s Contracts database, China has secured considerable contractual capacity with the US since 2021, signing about 18 medium-to long-term sale and purchase agreements (aggregating 28 mtpa) with extended supplies until 2040. Thus, China’s prolonged pivot from the US will dent LNG shipping.

With increased contractual supplies from the US, China could resell more US LNG cargo to Europe. However, the extent remains uncertain as China’s growing reselling could invite stringency from its key exporters, challenging its position and flexibility as a non-traditional seller to key importing countries.

US LNG planned projects in limbo

Due to the tariff wars, the US economy will face higher inflation, which could derail the pace and financing for LNG planned projects despite regulatory easing following Trump's lifting of the pause on US LNG export permits and licenses.

Meanwhile, China has paused signing any supply deal with the US since 2024. We believe many factors led to the country refraining from signing any new contract with the US, ensuing speculations over Trump’s return as US president.

A silver lining: Trump’s triumph over tariffs could lead to its LNG partners considering negotiations. Europe, Taiwan, India, South Korea and other South & Southeast Asian countries could sign long-term deals with the US, which could boost US-planned projects and is the only bright side appearing from Trump’s current tariff game. However, the global economy has started expecting recessionary fears, which could dissuade investors’ interest and buyers – delaying and postponing the pace of LNG project development.

Long-run implications seem more dire for LNG shipping

We expect the long-run implications will dent LNG shipping; in the case of –

More Australian and Qatari LNG reaching China: The overall tonne-mile demand will contract as more cargoes substitute US LNG.
Even if new supply from Canada and Africa reach China, it will not compensate for the compromised tonne-mile generation from the US-China trade.
LNG shipping will not reap the benefits of China’s high LNG demand and robust US LNG supply. This will become more spiteful once Europe’s demand starts stabilising.
Lastly, Russian gas supplies to China could gain ground with plans for Power of Siberia 2 resurfacing, further hitting LNG shipping.

LNG Shipping rates to suffer: Changes in trade patterns amid the US-China trade war signal lower tonne-mile generation, which could further worsen the ongoing downturn in LNG shipping rates while aggravating oversupply conditions (especially from 2026, negating any expected recovery in rates). While the impact of the US-China trade war will be limited on LNG shipping rates in the short run, rising tariff tensions could increase fears of a global recession, dampening project developments and threatening future capacities. This will put the future of LNG shipping at significant risk, weathering the expected recovery in rates towards 2027-28, which largely hinges on 1) anticipated liquefaction capacity addition, with the US commanding the largest share in planned volumes, 2) increased LNG demand in Asia, buoyed by lower prices and 3) expanded US-Asia trade, given contracting activities in the recent years.