More Energy Impacts in U.S.-China Trade Standoff

Mark Green
Posted June 20, 2018

Two charts pretty well capture the what’s at stake for U.S. energy – specifically exports of domestic crude oil – in an intensifying trade standoff between the United States and China.

According to U.S. Energy Information Administration figures, this is a very big deal. Big as in U.S. crude oil exports to China accounted for about one-fifth of all U.S. oil exports in 2017 – growing from basically nothing in 2013 to 81.6 million barrels last year:

The skyrocketing growth captured in the chart above made China the No. 2 importer of U.S. crude oil last year, second only to Canada:

Because Canada also exports lots of oil to the U.S., China actually is the No. 1 net buyer of U.S. crude. Additionally, when we consider that China also will apply tariffs to U.S. chemical exports, we’re potentially looking at a significant disruption across the U.S. energy value chain – one that could have ripple effects on U.S. natural gas and oil production, manufacturing investment, jobs, economic growth and more. API Chief Economist Dean Foreman:

“In recent years, the U.S. has experienced many examples where infrastructure bottlenecks for oil, natural gas, or natural gas liquids have undermined product value and – at the beginning of the value chain – ended up with lower drilling activity as a result.  While markets tend to solve these issues, and the U.S. has thrived, trade barriers could shake the very foundation of the industry, as companies recently have invested hundreds of billions of dollars in the U.S. based on trust in the stability of its free-market approach.  Not only could trade frictions impact the first wave of industry investments, they hold the potential to deter future ones.” 

It’s the situation at hand after President Trump decided to impose tariffs on Chinese goods, which API warned could impact the U.S. energy renaissance and American consumers. API President and CEO Jack Gerard

“The lack of transparency in the process, as well as the absence of consultation with the U.S. natural gas and oil industry to determine the potential impact on U.S. investments, jobs, and consumers, is especially troubling. Section 301 tariffs, as well as the recently implemented Section 232 tariffs, will have a real impact on current and future U.S. energy projects, and could ultimately harm our energy renaissance which provides high-paying jobs and affordable and reliable energy to Americans.”

Beijing retaliated last week with a threat to hit U.S. imported crude with a 25 percent duty. The president then said additional tariffs on another $200 billion in Chinese goods could be imposed. Trade disputes are costly all around, but the escalation here is dizzying. In the case of restrictions on U.S. oil exports, the target is a key sector for U.S. economic growth and global strength: energy.

Unfortunately, the issue with China compounds trade-related concerns for U.S. natural gas and oil from the administration’s previous decision to impose tariffs on imported steel.

We’ve discussed why those tariffs are bad for American energy and American consumers, as well as the important way free energy trade benefits the U.S. As we’ve noted, restrictions on imported steel could result in higher costs for essential materials, such as pipe, leading to shortages and potentially delaying and/or blocking important energy projects that are central to U.S. economic strength.

A course change is needed. Reversing bad trade policies can be difficult and time-consuming. Meanwhile, there could be damage to America’s position in global energy markets and impacts on domestic production that spread to the broader economy – potential outcomes that clearly are at odds with the administration’s goal of energy dominance.