Misguided Tariff Policies and Warning Signs for U.S. Economy

Mark Green
Posted June 27, 2019

The U.S.-China trade dispute is hurting the United States economy, consumers and the American energy revolution.

In a nutshell, that was industry’s message to the U.S. Trade Representative and Section 301 Committee during a public hearing this week in Washington. U.S. tariffs on more than 100 products – and China’s retaliation – are leaving a mark on the U.S. natural gas and oil industry, one that could have ripple effects throughout the economy. API’s Aaron Padilla, senior advisor for international policy, in testimony:

“The U.S. has departed from a path of free trade, tied to the rules of a multilateral system, to one of increasing protectionism and managed trade where every aspect of the U.S. trade and investment relationship is up for negotiation on a bilateral basis.”

Padilla urged three courses of action:

Lift all Section 301 tariffs and quickly resolve current trade dispute with China

Padilla said U.S. energy interests are harmed by Section 301 tariffs because they create uncertainty, hindering investment, and prompt Chinese retaliation against U.S. energy exports.

In the nine months before the U.S. imposed Section 301 tariffs on Chinese imports in July 2018, China received 22 percent of total U.S. crude oil exports and 4 percent of total U.S. refined products exports. From July 2018 to March 2019 (starting shortly after the first round of tariffs on imports from China was implemented), those numbers fell to 3 percent of U.S. crude oil exports and 2 percent of refined products exports. This demonstrated that “China can easily turn to other countries, quite possibly U.S. adversaries like Iran and Russia, to meet their needs,” Padilla said.

The U.S. should settle things with China, using the current trade talks to do what’s possible to address China’s unfair practices, so that “we can return to the marketplace match where abundant U.S. supply of natural gas and oil flows as exports to meet China’s growing demand,” Padilla said.

Work with U.S. trade partners

The U.S. should enlist the help of countries that are allied with U.S. interests, as they relate to China, to reach comprehensive solutions through multilateral negotiations and within the World Trade Organization and the rules-based global system.

Reach an agreement to end all Section 232 import restrictions

As soon as possible, end tariffs and quotas on steel, which is critically important to natural gas and oil industry operations. This should be based on other nations’ willingness to work with the U.S. to address China’s discriminatory practices – such as the U.S. has now agreed with Canada and Mexico.

Expanding Section 301 tariffs on $300 billion worth of products, as the administration has threatened, could increase harm to our industry, the U.S. economy, America’s energy security and energy consumers. Padilla noted products that could be affected by Section 301 expansion are key to industry’s operations:

• Barites are used as a weighting agent in drilling mud, the fluid that lubricates during drilling, removes cuttings and helps maintain control of the well while it’s being drilled. Industry uses about 2.3 million tons of it a year, and about 40 percent of it is imported from China.
• Parts of hand operated and check appliances for pipes, boiler sheets, tanks and more, of iron or steel, which are used in U.S. manufacturing of oil field surface and subsea production equipment.

These should be excluded from the next round of tariffs. Padilla:

“The U.S. lacks domestic reserves and quality of barite to meet the drilling fluid industry’s demand and has needed to import between 75 and 80 percent of the barite domestically used. Trade in barite and in hand operated and check appliances are not examples of the Chinese government’s technology transfer and intellectual property policies found to be problematic by USTR.”

Another casualty of the U.S.-China trade dispute is U.S. exports of liquefied natural gas (LNG). China has imposed 25 percent retaliatory tariffs on U.S. LNG and has other nations it can trade with to meet its rising energy demand (Russia, Australia, Qatar, Malaysia and others). This is significant, given that China has been one of the largest importers of U.S. LNG. Padilla:

“China’s expected retaliation against U.S. crude oil, refined products, and LNG would disadvantage U.S. exports and could cascade into U.S. domestic production. U.S. market share in China for LNG and other petroleum products may be difficult to restore with China turning to alternative suppliers.”

These are serious warning signals – not just for our industry, but for the U.S. economy. Americans have paid $22 billion in additional tariffs on imported steel and aluminum and on tariffs on imported goods from China over the past year, according to research. Meanwhile, exports of U.S. goods targeted by retaliatory tariffs also fell 28 percent.

It’s past time to end tariff/quota policies that are hurting Americans.