May 22, 2019 Community news from the prairie to the lakes  
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  Steel tariffs steal your gasoline savings
  BY MERRILL MATTHEWS, Institute for Policy Innovation
 

President Trump’s pro-energy policies are on a collision course with his protectionist policies. Let’s hope, for the sake of the economy and energy independence, energy policies prevail.

At a time when U.S. oil production is at an all-time high, the president’s tariffs on metals are raising the cost of pipeline and drilling materials.

In the last few years, breakthroughs in extracting oil and natural gas secured America’s spot as a top energy producer.

Last year, U.S. production surpassed both Russia and Saudi Arabia. Today, the nation is producing more than 11 million barrels of crude oil a day, more than doubling output from 2010.

Increased supply has put downward pressure on oil and gas prices -- and consumers are benefiting.

Remember when a minor rumble in the Middle East would push gasoline prices through the roof? Gasoline at the pump hit $4.00 a gallon in 2011 and 2012 and nearly that high in 2013 and 2014, according to the U.S. Energy Information Administration.

Today, Iran’s ability to export oil is severely limited, Iraq still faces production challenges and Venezuela, a major oil exporter to the U.S., is in free fall.

And yet, gasoline prices are about $2.25 a gallon, according to the EIA. Those low prices free up billions of dollars that consumers can spend on other needs.

But low gas prices are not guaranteed. Forces can push them higher -- and one of those forces is the president’s steel tariff.

The tariff meant to encourage U.S. businesses and consumers to purchase more made-in-America steel.

But pipelines need a specific type of steel that is primarily made in other countries. So far, U.S. steel manufacturers haven’t stepped up to fill the need.

U.S. energy companies import an estimated 77 percent of the steel used in pipelines, at a cost of $2.2 billion a year. This means a 25-percent tariff adds roughly $550 million to the cost of building and maintaining the nation’s energy infrastructure.

There are only a handful of mills that have the costly equipment necessary to make steel products for the oil and gas industry. By some estimates, new facilities for manufacturing high-pressure valves will take years to build, resulting in price hikes as high as 150 percent

Recent analysis from consulting firm Wood Mackenzie found that metal tariffs drove up the prices of drilling parts in one West Texas oilfield by over 30 percent last year.

President Trump recently boasted that U.S. steel manufacturers’ profits are up. And he touts the billions of dollars from tariffs being added to the U.S. treasury.

However, those billions of dollars are coming from U.S. businesses and consumers. Americans pay the tariffs, not China.

But businesses that buy steel from U.S. manufacturers also pay higher prices because tariffs on foreign competitors allow domestic manufacturers to raise their prices. That’s why their profits are up.

Those costs eventually trickle down to consumers in the form of higher prices.

So even as the president’s pro-energy policies are spurring production and making energy prices more affordable, his tariffs are making them less so.

Trump is reportedly eager for his trade negotiators to find common ground with China so that he can scale back or end his trade wars. Let’s hope they succeed.

Without an agreement, the money saved from increasingly abundant energy will be offset by the money we spend on the increasingly onerous steel and aluminum tariffs.

 

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews. This piece originally ran in The Hill.

 
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