By Ian DeValliere
Trade works. Tariffs don’t.
The tariffs that the Trump Administration has put into place have thrown a wrench in the gears of America’s thriving economy. Not only do they function as a direct tax on American consumers, but unsurprisingly they have been met with retaliatory measures that harm businesses hoping to sell American goods to the rest of the world. Long-standing trade agreements have improved our relationships with countries around the world and have expanded U.S. businesses to new markets. Trade plays a vital role in the success of American companies, and a trade war would have serious repercussions.
As Chamber President and CEO Tom Donohue notes, these policies could erase the recent economic gains that the Trump Administration worked so hard to secure through tax reform and regulatory relief. To help understand the extent and magnitude of these harms across the country, the U.S. Chamber of Commerce developed an interactive map to show just how much these ill-advised tariffs may cost your state.
Not surprisingly, the energy industry—which has been the backbone of U.S. economic growth over the past decade—will not be spared from these costs. Let’s look at the ways that the looming trade war is harming U.S. energy:
- Countries will import less American coal- As domestic demand has fallen, U.S. coal producers have been eager to expand export markets abroad. There are signs that U.S. trade partners may be hesitant to buy U.S. coal due to trade concerns. For example, in the span of just two weeks in June, China reportedly first offered to increase its imports of U.S. coal in an effort to reduce its $375 billion trade surplus with the U.S., then promptly reversed course and included coal on a list of retaliatory tariffs issued in response to $50 billion of Trump Administration tariffs on Chinese goods. The West Virginia Chamber of Commerce recognizes the threat tariffs pose on the coal industry, and President Steve Roberts told Reuters:
“We are concerned about the momentum slowing down... We are literally holding our breath to make sure this dispute is part of a bigger picture... and the parties see the advantage of trade with each other.”
- Wind and solar projects are already more expensive- The initial wave of tariffs the Trump Administration rolled out included a 30 percent tariff on solar products as well as tariffs of 25 percent and 10 percent on steel and aluminum, respectively. Wind turbines and solar panels both need large amounts of steel to operate, with estimates showing 1600 tons of steel per megawatt for solar and 400 tons of steel per megawatt for wind. U.S. steel prices have risen 40 percent since January and are now 50 percent higher than in Europe. These higher production costs hurt renewable energy development in states across the country, and leave customers paying more. Tom Kiernan, CEO of the American Wind Energy Association, expressed the association’s concerns:
“[T]his trade policy would run counter to the Administration’s goal of U.S. energy dominance and harm the U.S. manufacturing workers supporting the wind industry’s rapid growth.”
- Pipelines will be more expensive and take longer to build- Steel tariffs are increasing the cost of pipeline projects for companies working to build the infrastructure necessary to transport U.S. energy resources to markets in the U.S. and abroad. Companies rely on specialized steel products from other countries in their pipeline production and will have to pay the 25 percent tariff in order to ensure their projects are completed on schedule. While some domestic suppliers can meet their specifications, increased demand and limited resources slow down the production of the pipelines. Senator Lisa Murkowski (R-AK) spoke out on how these tariffs impact the production of an Alaskan natural gas pipeline, saying:
"This is a big deal up north. … The back-of-the-envelope number[sic] is that with these tariffs, we might be in a situation where it's not only hundreds of millions, it might be as much as a half a billion dollars added on to the most expensive infrastructure project that we have seen in this country. … This has real impact"
- Foreign investment in domestic energy projects is at risk- In November of last year, China Energy Investment Corp. agreed to invest almost $84 billion in West Virginia for shale gas development and chemical manufacturing. Executives were supposed to announce their first projects this month, but had their trip cancelled by Chinese officials because of the impending trade war. These projects would create jobs and pump money into areas rich with natural resources. Brian Anderson of West Virginia University believes that the partnership could still be completed in the long run, but said that:
“The trade war puts the project in jeopardy… They’re making a business decision, not a political decision. Once the political waves settle, it goes back to the return on investment.”
- China is reducing purchases of U.S. oil- Shortly after the United States lifted its ban on crude oil exports in 2015, China became the largest market in Asia for American crude oil producers. Demand for crude oil in China gives American producers a unique opportunity to reduce our trade deficit and benefit consumers here at home. However, in order to reach the dollar-for-dollar match of tariffs the administration has placed on Chinese products, Chinese officials have announced plans for a 25 percent tariff placed on U.S. crude oil. This tariff would make American exports non-competitive, and China has said that it would consider purchasing crude oil from Iran despite U.S. sanctions. Secretary of State Mike Pompeo has made it a priority to stop our allies from conducting business with Iran, and the tariffs incentivize companies to purchase Iranian oil. As Matt Smith, director of commodity research at tanker-tracking firm ClipperData put it:
"If [the sanctions] get applied, then it means that we're going to see U.S. supplies to its largest market being cut."
- Risk to downstream capex in petrochemical manufacturing- According to the American Chemistry Council, there are 325 chemical industry manufacturing projects under way in the U.S., representing an investment of more than $194 billion. This massive investment is underway largely thanks to the U.S. energy revolution, but the Trump Administration’s latest action threatening new tariffs on $200 billion worth of products could threaten nearly 460,000 jobs and almost $100 billion associated with these investments. The tariffs hit a variety of chemicals that are essential to American manufacturers, and China’s retaliation measures are sure to decrease the demand for these U.S.-made products. On July 11, Cal Dooley of the American Chemistry Council warned that:
“Unilateral actions that alienate long-standing U.S. allies and close off the U.S. market to the rest of the world are not a recipe for economic growth and prosperity and are very unlikely to change China’s unfair practices.”
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