More Section 301 Tariffs Will Hurt Industry, the Economy and Consumers
Posted August 21, 2018
The U.S. is leading the world in the production and refining of natural gas and oil which is boosting our economy, keeping energy affordable for consumers and benefitting American workers. Despite these facts the Trump administration continues to push policies that work against domestic energy production. Proposed additional Section 301 tariffs – and the retaliatory tariffs from China that they could provoke – follow a similar pattern.
Free and fair‐trade practices enhance access to global markets and global supply chains, benefiting American industries, the economy and consumers. This was the message delivered by Stephen Comstock, API’s director for tax policy at a hearing on Section 301 tariffs held by the U.S. Trade Representative (USTR):
“We understand the need to curb discriminatory trade practices, but these broad, additional Section 301 tariffs currently being considered would likely slow US natural gas and oil production, threaten jobs in our industry and hurt consumers.”
We’ve discussed what’s at stake for U.S. energy – specifically exports of domestic crude oil – in an intensifying trade standoff between the United States and China. We’ve detailed why tariffs are a threat to America's national security, as well as the important ways free energy trade benefits the U.S. Additional tariffs could result in diminished access and higher costs for essential materials, leading to shortages and potentially delaying and/or blocking important energy projects that are central to U.S. economic strength.
Our industry relies on imports from China for many products listed under the additional proposed tariffs including raw material and component parts used to support the U.S. manufacturing of oilfield surface and subsea production equipment like taps and valves; parts of hand operated and check appliances for pipes, boiler shells, tanks and vats, and other machines; and various mechanical appliances. Components used for pressure control, completion and artificial lift equipment are also listed under the additional proposed tariffs – items that are necessary for use in well construction and natural gas and oil production operations. Even LCD indicator panels, not all that different from the display on a microwave or at-home scale.
One of the listed minerals, barite – which is used in all types of drilling fluids, most critically to maintain control of the well during drilling operations – the U.S. doesn’t have sufficient quantities of to meet industry’s drilling needs, and China is the main source it. Including it in the list of tariffed items is essentially just implementing a tax on drilling – we’ll still need to import it, it will just cost more.
Comstock’s testimony went on to explain industry’s further concerns with the additional Section 301 tariffs – the retaliatory tariffs that the Chinese government has already proposed that would specifically target U.S.-produced liquified natural gas (LNG):
“China is currently the third largest importer of U.S. LNG and those export amounts have been increasing to match China’s rising demand for natural gas. The U.S. is one of the world’s main LNG suppliers, but other countries are capable of supplying China – including Australia, Qatar, Malaysia and Russia.
“This trade dynamic suggests that additional tariffs by the Chinese on U.S. LNG will hurt the US more than it hurts China and naturally incentivize other LNG suppliers to fill this market. This could impact the construction of domestic LNG projects looking to capture Chinese market which could cascade into reductions in domestic natural gas production. The potential loss of markets in addition to impacts on domestic production provide a small example of how destructive trade wars can be on the parties involved.”
Before undertaking any Section 301 effort to address discriminatory and market‐distorting practices of our trade partners, the administration should consult with the impacted industries to understand the implications – for those industries and the consumers they serve.
USTR has indicated it will use an exclusion process similar to that of Section 232 tariff exclusions, where officials would consider requests from companies to exclude certain imports from these proposed tariffs. But the lack of transparency in the Section 232 process, and the absence of consultation with the U.S. natural gas and oil industry to determine the potential impact on U.S. investments, jobs and consumers, is especially troubling.
Section 301 tariffs, as well as the recently implemented Section 232 tariffs, could have a significant negative impact on current and future U.S. energy projects and could ultimately harm our energy renaissance, which provides high-paying jobs and affordable and reliable energy to Americans.
About The Author
Jessica Lutz is a writer for the American Petroleum Institute. Jessica joined API after 10+ years leading the in-house marketing and communications for non-profits and trade associations. A Michigan native, Jessica graduated from The University of Michigan with degrees in Communications and Political Science. She resides in Washington, D.C., and spends most of her free time trying to keep up with her energetic Giant Schnauzer, Jackson.
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