Impact of Escalating Sino-U.S. Tariffs on China Ethanol Industry
Introduction: On April 3, 2025 (Beijing time), U.S. President Donald Trump announced the imposition of “reciprocal tariffs” on global trade partners. In response, China promptly declared corresponding tariff countermeasures, adding 34% tariff on top of the existing rates for all imports originating from the U.S., further escalating the trade war. In terms of ethanol, the impact of tariff fluctuations on China’s ethanol industry is mainly reflected in the impact on the feedstock corn price and the by-product DDGS price. Since the import tariffs on ethanol in China and the U.S. have been already high, it will not have a major impact on China’s ethanol import and export trade for the time being.
From the perspective of feedstock, tariff increases may affect global corn prices and thus affect China’s corn prices. China’s annual output of corn exceeds 200 million mt, mainly relying on self-sufficiency. According to GACC, China’s corn import volume in 2024 was 13.63 million mt, accounting for less than 5% of China’s corn supply. The volume of corn imported from the U.S. was about 2.07 million mt, accounting for about 15% of China’s corn imports and ranking third. Since the last trade friction between China and the U.S., Brazil has replaced the U.S. as China’s largest trade partner for corn imports. In 2024, China imported about 6.46 million mt of corn from Brazil and 4.51 million mt of corn from Ukraine, ranking first and second respectively. The world’s major corn exporters include the U.S., Ukraine, Brazil, etc., and Ukraine and Brazil are the main countries that compete with the U.S. and affect China. After the U.S. imposes additional tariffs on many countries, it remains to be seen whether other corn-importing countries will consider imposing tariffs on U.S.-origin corn, thereby increasing the cost of importing corn from the U.S., which is bearish for the U.S.-origin corn prices. On the other hand, it needs to pay attention to whether other corn-importing countries will import corn from Brazil, Ukraine and other countries, thereby boosting the prices of corn in Brazil and Ukraine. Fluctuations in global corn prices will eventually affect China’s corn prices. Rising grain prices typically lead to higher production costs for grain-based ethanol in China.
From the perspective of ethanol supply, China usually imports less ethanol, and tariff increases will not cause fluctuations in China’s ethanol supply. According to SCI, China’s ethanol output in 2024 was 10.4189 million mt, while according to GACC, China imported a total of 4,700mt of ethanol (including denatured and undenatured ethanol) in 2024, and China’s ethanol import dependence degree was less than 1%. The U.S. is the world’s largest ethanol producer, with an annual ethanol output of more than 40 million mt, accounting for about 40% of the global ethanol market share. The U.S. is also the world’s largest ethanol exporter. In 2024, the U.S. exported about 5.7 million mt of ethanol, and it mainly exported ethanol to Canada, the U.K., India, Colombia, and the Netherlands. Since the last round of tariff increases between China and the U.S., the arbitrage window for ethanol trade between China and the U.S. has been closed most of the time. The indirect impact of tariff increases on China’s ethanol industry is mainly reflected in the impact on grain price fluctuations and thus the production of China’s ethanol industry, as well as the impact on the export of downstream and end products of ethanol.
From the perspective of demand, high prices will affect demand. In addition, grain-based ethanol may be priced too high, which may be beneficial to the development of the non-grain-based ethanol industry. Some players also worry that this round of tariff increases will bring about an economic recession, which will, in turn, affect consumer goods. However, for ethanol alone, if the corn price is high, it will inevitably lead to high prices for grain-based ethanol, and high ethanol prices will inevitably harm the downstream application and demand. It is also worth noting that compared with additional tariffs imposed on each other by China and the U.S. in the previous cycle, China’s ethanol production process has undergone major changes in recent years. Although the proportion of grain-based ethanol output is still large, the coal-based ethanol industry is also developing rapidly. The grain-based ethanol industry is facing intensified competition from ethanol produced by other processes in terms of industrial use. If coal prices fluctuate limitedly and the operating stability and quality of coal-based ethanol units can be further improved, the cost advantage of coal-based ethanol will increase. In addition, from the perspective of bioenergy, the production of ethanol gasoline should theoretically consume biofuel ethanol, and biofuel ethanol is mainly composed of grain-based ethanol. Although the Chinese government is required to add ethanol in areas where ethanol gasoline is implemented, from a global perspective, it is also necessary to pay close attention to the fluctuation of crude oil prices. If crude oil prices continue to fall, the competitiveness of bioenergy may be weakened.
Finally, tariff increases may also have an impact on the DDGS market, a byproduct of ethanol. Although China has imported less DDGS, fluctuations in corn prices and other meal prices will also affect the DDGS market sentiment and price fluctuations, and thus affect the profitability and operations of ethanol producers. Further observation is needed in the future.
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