U.S. Energy, Jobs Continue to Be Impacted By Trade War
Posted January 2, 2019
Trade talks at the recent G-20 might have produced a ceasefire for one front in the trade war, but collateral damage continues to mount.
Before the holidays, retailers warned that the Trump administration’s tariff policies could raise prices on everything “from cribs to Christmas lights.” They were right. The Tariffs Hurt the Heartland coalition recently announced that Americans would pay more to light the tree this year. The vast majority of our holiday lights come from China, which means they were subject to a new 10 percent tariff this year – another casualty in the ongoing, multi-front trade war.
Industries from agriculture to automobile manufacturers are facing limitations in critical materials, billions in increased costs, compromised access to valuable overseas markets, or sometimes a financially fatal combination of the three.
Likewise, tariff and quota policies are hitting America’s natural gas and oil industry from multiple directions. We can’t operate without steel to drill wells that produce energy; operate refineries that turn it into gasoline and a variety of other essentials; and build pipelines, liquefied natural gas (LNG) export terminals and petrochemicals plants.
Like Christmas lights, numerous specialty steel products we rely on simply aren’t manufactured in the United States in sufficient quantities, if at all, or to the quality and delivery schedule specifications we need. The 25 percent tariff on steel supplied by top economic partners – including Canada, Japan, Mexico and European nations – has a concrete impact on job-creating projects.
Take the Cactus II pipeline, a $1.1 billion project from Plains All American Pipeline LP to transport crude oil from the prolific Permian Basin. Although 80 percent of the project cost is comprised of U.S. material and labor, including 2,600 construction jobs, construction also required line pipe made to specifications produced by only three steel mills in the world, none of them in the U.S.
Denied an exclusion on steel, ordered from Greece before the tariffs were implemented, the project managed to move forward but only after getting slammed with an additional $40 million in costs – essentially a tax on job creation.
It’s not just a matter of increased costs. As damaging as tariffs are, quotas are worse. A number of U.S. allies are bracing for quotas or already operating under them, which means that materials from those nations won’t be available at any price once we reach the pre-determined limit. Quotas will cut the supply of much-needed steel products, forcing American companies to delay or cancel crucial projects that would create U.S. jobs and boost the economy.
There’s no guarantee the U.S. steel industry will invest the several years and hundreds of millions of dollars to begin producing these specialized products, and it’s easy to understand why. Why upend your business model and incur massive costs for products that make up less than 10 percent of your domestic market?
Then there are the retaliatory tariffs imposed by the China, which could impede U.S. energy exports from entering one of the fastest-growing and lucrative energy markets in the world. As the world’s leading natural gas producer, the U.S. should have a major competitive advantage in this crucial market. Energy trade with China means more jobs at home – not just in natural gas production and pipeline construction, but in building and operating multi-billion-dollar export facilities, several of which are ready to break ground.
Despite the temporary truce reached this month, the impacts on U.S. LNG could last long past any resolution of the trade war. As S&P Global Platts' Ira Joseph told the Wall Street Journal:
"The tariffs will push Chinese buyers to other sellers in Asia and the Middle East because the U.S. will no longer be considered a low-cost option."
Ironically, White House trade policy is actually undermining solutions to the very trade deficits its policies were meant to address. American energy has reduced the trade deficit by about $250 billion over the last decade, according to a new report from research firm IHS Markit.
With surging domestic production, net imports of petroleum products have dropped by more than 100 percent since 2013, with the U.S. poised to be a net crude oil exporter by 2026. Now that China has slapped U.S. LNG with a 10 percent retaliatory tariff and suspended purchases of U.S. crude oil, our increasing energy exports are at risk – to the benefit of our competitors.
There’s a problem when Qatar and Russia are the big winners in U.S. trade policy, and everything from holiday lights to natural gas are among the losers. Let’s re-focus U.S. trade policy to address truly discriminatory trade practices – a vital objective – without jeopardizing U.S. jobs and energy leadership.
About The Author
Kyle Isakower is vice president of regulatory and economic policy at the American Petroleum Institute. With 26 years experience, he is the go-to guy for issues regarding energy and environmental policy and oversees the development of API standards and economic analyses. In his past lives, Kyle has worked on issues related to waste management and remediation, NAAQS and air toxics—and led efforts promote the industry's energy efficiency efforts. Transplanted to Washington from north Jersey over 20 years ago, he remains faithful to the New York Giants, and works diligently to ensure his wife and two children do so as well.