To understand the impact of the proposed US tariffs on China, which are expected to touch approximately $200 bln worth of imports, it would be advisable to examine not only the potential effect these may have on the economies of the two countries, but also on world trade and subsequently the price of oil. Why oil? Well, given that the goods are imported to the US, it means they have to be transported somehow. Given the geographical distance between the countries, this can only be done by vessels or airplanes, which use petroleum or petroleum products such as fuel.
To perform a simple estimation of how much oil is employed by the maritime industry, we first assume that boats do not use full speed when travelling and neither do they employ very slow steaming. To this end, the average fuel consumption of a vessel would stand at approximately 150 tonnes of oil per day (using containership fuel consumption as a proxy). Ships sail approximately 60% of the year, hence total consumption of oil would stand at 38,850 tonnes annually. As the total number of ships stands at 52,000, total fuel consumption is estimated at approximately 1.71 bln tonnes per year. For comparison purposes, total petroleum production in 2017 stood at 4.4 bln metric tonnes.
Total merchandise exports, according to the World Bank, stood at $14.88 tln in 2017. Of this, IMO estimates that 90% is seaborne, bringing the number to $16 tln. Hence, the tariffs are expected to impact 1.25% of total world exports. In terms of oil, this is expected to impact about 21.4 mln tonnes, or 0.5% of total production. Naturally, tariffs do not mean that all trade on the affected goods will cease. However, as we have suggested earlier, there will be some cost to trade, which could provide a drag to oil prices, depending on the level of world growth. If the world grows by 3.2% in 2019 as predicted by IMF, we could assume that world exports would grow similarly. As such, using the 90% IMO estimate, demand for oil is expected to increase by 2.9% (3.2% multiplied by 90%).
Remember that forecasts are usually priced in the market. This means that, at any given point in time, the price of oil reflects the anticipated change in oil demand for the year, and to a smaller extent, some years down the road. The imposition of tariffs is, however, a new piece of information which will impact the market. In an example, suppose that the trade between China and the US is reduced by 20%, then the 2.9% increase in demand for transport oil would be reduced by 0.1% (0.5% multiplied by 20%). This negative effect will have to be factored in the oil markets, pushing prices down. Naturally, the extent of the impact on trade would weigh heavily on how much the price of oil is affected, with no specific number being ex ante right or wrong. However, the more the markets expect that an increase of tariffs will affect world trade, the more it should price in its fears. Until tariffs are enacted, there is no way to be certain as to how large the effect on oil prices can be.