Politicians love to complain about “unfair” foreign trade barriers. It’s time for them to pay attention to unfair U.S. barriers, too.
Consider import taxes and quotas that restrict the supply of steel, a vital component of U.S. manufacturing. These tariffs hurt every industry, from automobiles to agriculture to textiles to technology. The energy industry — where America has the potential to dominate globally — has been and will be severely hurt by trade policies that hinder the growth and success of U.S. companies.
Earlier this year, a coalition of oil and gas associations wrote: “National security requires pipelines to deliver the energy America needs, and pipelines require specialty steel products not always available in sufficient quantities and specifications from domestic manufacturers.”
Their words fell on deaf ears as the Trump administration imposed new taxes of 25 percent on imported steel, along with a 10 percent tax on imported aluminum.
In theory, companies can secure exemptions from these tariffs, but the exemption process has been described as slow, arbitrary, and non-transparent. As of August 6, the Commerce Department had granted just 1,418 exemptions from steel and aluminum tariffs out of 33,099 requests.
A request from Plains All American Pipelines for an exemption in order to facilitate construction of a $1.1 billion pipeline was one of those rejected by the Commerce Department. According to the company, “The steel tariff exclusion request review process is flawed and does not allow for an applicant to effectively engage in the review process.” The tariffs in this case will unnecessarily stall a project that will bring better jobs to American workers.
The solar industry has also been hit. Washington state’s REC Silicon announced that 100 people would be laid off due to the ongoing U.S.-China solar trade dispute. New taxes on imported solar components have reduced projections for solar energy growth, while U.S. manufacturers of solar goods grapple with increased steel and aluminum prices.
When the U.S. steel and aluminum barriers were erected, President Trump’s trade advisors claimed other countries wouldn’t respond in kind. For example, Peter Navarro, director of the White House National Trade Council, naively said: “I don’t believe any country will retaliate.” That was a big miscalculation. U.S. businesses now face retaliation from our largest export markets, including Canada, Mexico, Europe, and Japan. China has announced plans to restrict U.S. sales of products including liquefied natural gas (LNG), refined products, and petrochemicals.
These U.S. trade barriers and the inevitable retaliatory barriers to U.S. exports threaten to reverse America’s emerging era of “energy dominance” in which the United States is becoming the world’s leading oil and gas producer.
Drilling, refining and shipping oil and natural gas are all processes that are highly dependent on steel, and a lot of it. But not just any steel: Drilling conditions on land and offshore both require steel pipelines that are so thick and of such high-grade specifications that they will withstand punishing temperatures and unforgiving ocean depths for 30 years at a stretch.
But the higher costs and lower margins associated with niche pipeline products led steel manufacturers in the United States to exit that market long ago. Not one of them can supply the chrome alloy tubing and components required for subsea drilling operations. What’s more, the uncertain nature of tariffs isn’t about to induce them to reenter that market anytime soon.
Tariffs have only succeeded in increasing pipeline costs. In 2017, the U.S. oil and gas industry spent about $8.5 billion on steel pipes. A 25 percent steel hike would push the cost of those same pipelines up to $10.5 billion.
Worse yet, the administration has introduced steel quotas for some nations in place of tariffs. In the instance of South Korea, steel exports to the United States have been capped at 70 percent of the average export total over the past three years. South Korea already hit its annual quota limit at the end of June.
The quotas are already having an impact. As Senate Finance Committee Chairman Orrin Hatch, Utah Republican, recently pointed out, the multi-billion dollar Shell Pennsylvania Chemical Project is expected to employ 6,000 construction workers and 600 full-time employees once the Western Pennsylvania facilities are operational. Unfortunately, thanks to steel quotas, specialized parts contracted for years ago are being delayed at the border because they contain steel from Brazil. As a result, the project risks delays and the process of hiring new workers may be delayed until parts arrive.
Meanwhile, Russia and the OPEC nations, wisely unburdened with artificially high steel costs, can thank Peter Navarro and other White House trade “experts” for an unexpected advantage in competing with American energy companies.
• Bryan Riley is director of the National Taxpayers Union Free Trade Initiative.
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