Trump shot the tariffs, but it did not scare President Xi

opinion

by Fayaz Hussain

December 2, 2024

As President-elect Donald Trump threatens renewed trade wars and tariffs, President Xi has launched a strategic first strike. China has announced the elimination of export tax rebates on aluminium, copper and used cooking oil (UCO), from December 1st.

China had been offering 13% tax rebates on used oils to encourage exports.

“The world had been listening intently to President Trump’s pronouncements on tariffs and his intention to launch trade wars with seemingly any Tom, Dick, or Harry upon his return to the White House on 20 January, when China reminded everyone – well, at least those in the biofuels world – a trade war is already underway with the EU,” David Elward, pricing director, General Index tells SAF Investor.

Chinese used cooking oil producers immediately increased December and January prices by 10%. Domestic cooking oil prices fell immediately because of worries about a glut.

China is the world’s leading used cooking oil exporter with the US the largest buyer. Between January 2023 and June 2024, the US imported 3.6m tonnes of waste fats, with nearly 55% coming from China. Europe imports over 80% of its UCO, with China supplying 60% of that, according to clean transport advocacy group Transport & Environment.

“China’s announcement of a change in UCO taxation policy which will curb exports is widely seen as a retaliatory measure, after the 27-member EU bloc slapped anti-dumping duties on Chinese biodiesel earlier this year,” added Elward.

However, for China, the move strategically positions its domestic manufacturers by maintaining export incentives for SAF, hydrotreated vegetable oil and used cooking oil methyl ester while removing rebates for used cooking oil. With reduced export competition and potentially lower local feedstock prices, this is good news for Chinese SAF producers.

China announced plans for a SAF mandate in August. The policy requires 2% SAF usage by 2025 with a step up to 15% by 2030. To hit this mandate, the country would need an estimated 2.5m tonnes of SAF. It would need more than 3m tonnes of UCO feedstock to hit this.

According to Chinese customs data, the country exported 2.12m tonnes of UCO in the first nine months of 2024. The termination of rebates on UCO exports would make these quantities available for domestic SAF production. Any surplus SAF beyond the mandated domestic consumption could end up in the EU.

However, Elward warns that the EU could add tariffs to SAF – similar to ones in place for biodiesel.

“Chinese SAF producers may benefit in the short term if feedstock prices locally fall due to reduced exports, as they can still sell their product into the EU. But that could change if some interest groups in the EU get their way and the anti-dumping duties are extended to Chinese SAF,” he adds.

A report by the US Department of Agriculture analysing the termination of rebates agrees that the policy change will initially disrupt the flow of used cooking oil exports from China, increasing domestic supply. This shift could “reduce fiscal pressure” and spur domestic growth of its domestic biofuel industry, “particularly enhancing SAF’s competitiveness on the global stage,” says the report.

The Department of Agriculture cautions that such a shift might prompt the EU to reconsider its current exemption of Chinese SAF from anti-dumping measures.