Energy Dominance’s Tariffs Pothole

Mark Green
Posted July 13, 2018

Tariffs and quotas on imported steel imposed by the Trump administration are self-inflicted potholes on the path to the administration’s goal of U.S. “energy dominance.”

They’re bad for American energy, which uses steel throughout its operations and delivery networks. They’re bad for American manufacturing, they’re bad for American consumers, and they’re bad for America.

We’ve discussed specific risks for U.S. energy (see here and here) – supply delays holding up important projects and cost increases – yet broad industry alarm seems to fall on deaf ears. In a new Washington Examiner op-ed, API President and CEO Jack Gerard and the leaders of two other trade associations discuss  the potential harm from anti-energy, anti-business and anti-consumer steel tariffs and quotas:

Taxpayers and businesses alike celebrated in President Trump's first year when he reformed regulations and signed a major tax cut — all designed to spur a new era of prosperity and growth for the U.S. economy. The president’s more recent trade decisions could reverse that tremendous progress, adding hundreds of billions of dollars in potential costs for American businesses — costs that could ultimately be borne by consumers.

Gerard, joined in the op-ed by the American Chemistry Council’s Cal Dooley and Edward Hamberger of the American Association of Railroads, write that the U.S. energy, manufacturing and transportation are “prime examples of the collateral damage” threatened by the administration’s tariffs. Steel is critically important in the energy space – for equipment, infrastructure, refining and transportation of natural gas and oil. More from the op-ed:

In many cases, the specialty steel and aluminum components our industries need are simply not produced in the United States. Our industries generate growth and savings that directly benefit U.S. households and small businesses. Fortified by free trade and fueled by the American energy revolution, these sectors support millions of jobs in the U.S. and across an array of industries. Tariffs put those benefits at risk. … While we respect the administration’s vision for U.S. energy and manufacturing dominance, we also know when U.S. trade policy is bad for business and a threat to our economic security.

Even more, Kyle Isakower, API vice president for regulatory and economic policy, said the administration’s process for granting exclusions or exemptions from the steel tariff is creating even more uncertainty for companies that rely on steel. Isakower:

“[T]he administration’s arbitrary process to determine these exclusions lacks transparency as it’s not clear how and why certain exclusion petitions are granted or denied. What is clear, though, is that implementation of tariffs on imported steel undermines domestic energy production and the future of our nation’s energy infrastructure which is critical to bringing American energy to market.”

Again, if the goal is energy dominance, one that could be paved by surging domestic natural gas and oil production, the current tariff and quota policy is the wrong path.

A few words on quotas. Three U.S. trading partners – South Korea, Brazil and Argentina – aren’t subject to the administration’s steel tariffs but are under steel quotas instead. These are set annual volumes distributed over four quarters. Once any one of these nations reaches its quarterly limit, steel imports from that country are halted. It’s possible sea-borne steel cargoes could be turned around mid-ocean.

For our industry, this significant injection of uncertainty could be seriously disruptive to project planning and investment, putting future projects at risk. Gerard, Dooley and Hamberger detail the examples of the risk:

• Steel tariffs could threaten about half of the more than $194 billion of new chemical industry investment announced since 2010.
• China is threatening retaliation against U.S.-made chemical exports worth $5.4 billion.
• Pre-tariffs, the private sector was projected to invest $1.34 trillion in energy infrastructure. Tariffs could hinder hundreds of billions of dollars’ worth of projects.

As we say, the administration doesn’t seem to be listening to these concerns. Congress should get into the picture by passing legislation that would amend a 1962 law that granted the president authority to impose import restrictions when he identifies a threat to U.S. national security threat. That’s just not the case with new tariffs affecting Canada, Mexico and our NATO allies. The legislative proposal would require congressional approval before tariffs could be imposed for national security reasons.

Gerard, Dooley and Hamberger:

By requiring the president to sit down with fellow elected leaders and consider a full range of trade solutions, the bill is intended to infuse more dialogue into the president’s decision-making and ensure the best possible outcome is achieved.

The U.S. energy renaissance has given our country a golden opportunity to control more of its energy destiny, to increase its security and to help friends and allies abroad. These largely define “energy dominance.”

Steel tariffs and quotas work against that objective. Delays and cost increases could make U.S. energy less competitive and diminish its benefits domestically and around the world.