New Modeling Shows Impacts of Trade Policy Gone Awry

Jessica Lutz
Posted February 20, 2019

Earlier this month we talked about the unforced error of the administration’s tariff and quota policies that hamstring the economy, detailing the findings of recent report from the nonpartisan Congressional Budget Office. Now, new modeling has reviewed those suspicions in the context of the energy trade, and the indications are clear: The escalating trade wars could significantly limit the U.S. energy revolution and the benefits to Americans that it would otherwise bring.

The recent report, part of BP’s annual “Outlook,” a macro-look at the global energy system over the next 30 years, models a number of different scenarios including one in which global trade disputes persist and worsen. The results of this “less globalization” scenario indicate that the continuation of these policies would slow global GDP growth by 6 percent and energy demand growth by 4 percent in 2040. To make matters worse, the effect could be intensified in countries and regions most exposed to foreign trade – like the U.S.

International trade underpins economic growth and allows countries to diversify their energy sources. Protectionist policies like the administration’s tariffs and quotas harm these energy benefits of trade, especially for the U.S.

The Outlook goes on to show impact on the growth of U.S. natural gas and oil exports. By 2040, U.S. natural gas and oil exports in the “less globalization” scenario are around two-thirds lower than in the “evolving transition” (ET) scenario – which assumes that government policies, technology and social preferences continue to evolve in a manner and speed seen over the recent past.

Alternatively, BP’s ET scenario shows the rapid growth of U.S. natural gas and oil “leads to a significant increase in net energy exports from the Americas, such that by 2040 the Americas are a material source of energy exports to the rest of the world.”

So, let’s recap: Under a trade policy that includes tariffs and quotas, like that of the current administration, we can expect global economic growth and energy demand to slow substantially and with a disproportionately negative impact on the U.S., whereas an open, market-driven trade policy would lead to significant increases in U.S. energy exports and an increasing stake in the global energy market for American businesses.

The U.S. is leading the world in the production and refining of natural gas and oil, which is keeping energy affordable for consumers – both at the pump and at home – benefitting American workers, bringing well-paying jobs, supporting small businesses, boosting our economy and advancing us toward the promise of ongoing prosperity and opportunity for present and future generations.

But America’s natural gas and oil industry doesn’t exist in a vacuum. International trade has an important influence on the global energy system, and if the administration’s trade disputes continue to escalate it will very likely have a significant negative impact on the outlook for U.S. energy.

There’s a lot at stake for U.S. energy in an intensifying trade war. We’ve detailed in the past why tariffs and quotas are a threat to America's national security, as well as the important ways free energy trade benefits the U.S, and this latest report is just one more reminder of why the right energy policies are critical for our country to continue to reap the benefits of the energy revolution.