How Tariffs Dampen the Energy Boom

A trade war would prevent American manufacturers from taking advantage of abundant hydrocarbons.

 
 

A U.S. Steel Corp. plant in Clairton, Pa.
A U.S. Steel Corp. plant in Clairton, Pa. PHOTO: ANDREW HARRER/BLOOMBERG NEWS
 

Is someone in the White House colluding with China? The Trump administration’s decision to impose tariffs on imported aluminum and steel lets China off the hook for its chronic and deliberate overproduction. Worse, it sets the stage for a trade war that would rob U.S. manufacturers of the advantages stemming from America’s recent transformation into the world’s hydrocarbon superpower.

From lifting restrictions on offshore drilling to ending the Obama administration’s war on coal, Mr. Trump’s robustly pro-growth energy policies have so far delighted American industry. Energy Secretary Rick Perry told an audience at February’s Conservative Political Action Conference that America has finally turned the page on the Jimmy Carter era of resource pessimism and energy shortages. Forecasters expect U.S. oil production to surpass Saudi Arabia’s output in 2018. Last year the U.S. produced 19.4% more natural gas than Russia.

Having freed itself from the Paris climate agreement and dumped the Clean Power Plan, the U.S. now has easy access to more low-cost energy than almost any other industrialized nation. American coal production, exports and employment rose in 2017 after years of decline. Thanks to technological innovations such as horizontal drilling and hydraulic fracturing, the U.S. is awash in cheap, domestically produced natural gas. No other industrial nation comes close to matching America’s energy exceptionalism.

 

Normally all this would be great news for domestic manufacturers, which rely on energy-intensive aluminum and steel as inputs. In Europe, where green policies have pushed up energy costs, natural-gas and electricity prices are roughly double those in the U.S. Yet despite the low cost of domestic natural gas, U.S. primary production of aluminum has fallen by more than half since 2015.

The reason is simple: China. In 2000 China produced about 11% of primary aluminum; now Chinese aluminum accounts for more than half of world output. After the 2016 election, the Aluminum Association urged President-elect Trump to make China’s aluminum sector a top trade priority and force Beijing to the negotiating table. By adopting National Trade Council director Peter Navarro’s aluminum tariffs this month, the White House effectively kicked over the table instead.

A former colleague has described Mr. Navarro as an “environmental pit bull.” He opposes major parts of the Trump administration’s energy agenda, sees carbon taxes and wind power as solutions to global warming, and is against exports of American energy. Without access to foreign markets, the U.S. coal industry would likely die.

The 25% tariff on imported steel is even more destructive than the aluminum tariff because it pits the U.S. against its European allies, making it harder for the EU to pressure China to reduce overproduction. EU steel output has fallen 23% since 2007, while Chinese production has risen 65%. In 2007, China increased its steel output by an amount greater than the total combined output of the EU and U.S.

Until recently, the EU and the U.S. had a shared interest in tackling the problem. But that spirit of cooperation is gone. American steel tariffs are the issue now, not Chinese overproduction.

America’s newfound energy leadership could become an effective counterweight to China’s financial muscle in the developing world. But if Mr. Trump insists on starting a trade war that makes American manufacturers less competitive and pushes the U.S. to the margins of the international trading system, expect the world’s aspirational economies increasingly to turn to Beijing. Everyone would lose, but the biggest hit would be to America itself. Let’s hope there’s time for second thoughts.

Mr. Darwall is the author of “Green Tyranny: Exposing the totalitarian roots of the Climate Industrial Complex” (Encounter Books, 2017).

Appeared in the March 22, 2018, print edition.

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