Impact on energy has Houston at trade war’s center
The back-and-forth trade dispute between the United States and other global powers such as China might seem like a far-off concept for many Texans. Commerce Secretary Wilbur Ross dismissed the impact of this dispute as a “rounding error,” implying that most Americans would never notice its costs. But these trade wars result in tariffs that have wide-ranging consequences in communities across the country, and the burdens imposed on the natural gas and oil industry put Texas at the center of a trade war that shows few signs of ending.
The Greater Houston Partnership found that the Houston area alone is home to nearly 5,000 businesses in the energy industry, with 250,000 employees making up almost 10 percent of the local workforce. Natural gas and oil provide and support millions of jobs throughout Texas and across the United States. When the industry is affected by burdensome and misguided government policies, the consequences are anything but trivial.
The tariffs on imported steel under Section 232 cause uncertainty and delays for U.S. energy projects and sometimes result in significant project cost increases, hurting companies and workers across the country. The “steel tax” — as the Section 232 tariffs are often referred to — added $40 million to a Plains All American project in the Permian Basin. The project, which generated 2,600 construction jobs, is dependent on specialty steel elements not produced in the United States. That steel had to be imported from Greece. This American energy project, with thousands of construction workers, was affected negatively by the tariffs imposed by this administration on European allies.
These trade policies are doubly damaging to infrastructure projects thanks to quotas, which restrict the amount of steel American companies can import. Projects could be significantly delayed due to material shortages in addition to rising costs. Even more troubling is the discussion of future quotas with Canada and Mexico. Those quotas not only run counter to the spirit of free trade that underpins the United States-Mexico-Canada (USMCA) trade deal, they actively hurt American businesses that rely on imported materials in order to operate and create jobs. If there is no relief provided for the existing tariffs and quotas, the effects will be felt in countless industries throughout the country, including right here in Texas.
In addition to U.S. tariffs and quotas, retaliatory tariffs from China have significantly affected the export markets for American natural gas and outlook for new liquefied natural gas (LNG) export facilities here in the United States. With a rapidly growing but still nascent LNG industry, the United States depends on access to overseas markets to help grow the American LNG sector and create jobs.
Reuters recently reported that only six LNG vessels went from the United States to China in the second half of 2018 as a result of retaliatory tariffs, down from 25 for the same period in the previous year. That decline raises serious red flags. Last year, China’s LNG purchases reached an all-time high. The fact that American LNG exports to China have dropped so precipitously shows that when the United States is unable to economically fill the energy needs of a major overseas market, other countries will readily fill the void.
The United States is right to fight to put us on a level playing field with our global competitors. However, the current approach is causing ongoing pain for the energy industry — an important driver of Texas’ economy and source of affordable and reliable energy for Texas consumers. The administration needs to shift course quickly, before the impact of its trade policies becomes even more painful. Our economy and our workers are depending on it. Padilla is senior adviser for international policy at the American Petroleum Institute in Washington, D.C.He leads API’s work to determine and represent the natural gas and oil industry’s public policy positions on key international issues, including cybersecurity, trade and global economic policy, and sustainability.