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By Merrill Matthews
This summer, China and the United States launched the opening salvos in a trade war that has been brewing for months. America imposed a 25 percent tariff on $34 billion of Chinese goods. In response, China slapped tariffs on U.S. products and agricultural goods such as soybeans and pork. President Trump escalated things by announcing another $200 billion in tariffs on Chinese goods.
Chinese officials, who had previously proposed to increase natural gas purchases in an effort to reduce the U.S. trade deficit, have already vowed to retaliate with a similarly sized tariff on U.S. exports, including crude oil and natural gas.
If the administration doesn’t defuse this conflict, China’s retaliatory tariffs could hammer America’s booming energy industry. They could wipe out thousands of current or future oil and gas jobs, and prevent the United States from achieving energy independence.
In the past decade, American energy production has soared. Thanks to drilling techniques like hydraulic fracturing, commonly known as fracking, natural gas production increased more than 50 percent from 2005 to 2017.
The increased supply of fuel has caused prices to plummet. Natural gas prices dropped more than 60 percent from 2008 to 2017.
Lower energy prices have greatly benefitted consumers, who are paying less to heat their homes and drive their cars.
America’s energy renaissance has made the United States less reliant on rivals such as Russia and Saudi Arabia. American imports of Russian crude oil in April 2018 was a third of what it was in April 2010. The United States is nearing complete energy independence, a feat thought impossible just a few years ago.
American firms have been spending heavily to build the infrastructure necessary to sustain these exports. Until recently, only one terminal to export liquefied natural gas existed in the United States. But several new terminals are currently under construction, which will create even more export opportunities. And just last year, Trump approved two major pipelines, the Dakota Access Pipeline and the Keystone XL Pipeline to transport oil to refineries.
This infrastructure spending all of it with private, not taxpayer, dollars could come to a screeching halt if China shuns our energy exports. China is the largest net buyer of U.S. crude oil in the world one fifth of all U.S. crude oil exports in 2017. China also imported more than $1 billion of American liquefied natural gas in 2017, and that figure is projected to increase nine-fold by 2021, according to a Morgan Stanley estimate.
Yes, oil and natural gas are commodities. If China puts on the import brakes, we may find other buyers, but there’s no guarantee.
A trade war could jeopardize American oil and gas jobs. U.S. tariffs imposed on steel are already having an impact on an energy industry heavily dependent on steel. With less revenue from exports, many companies would have no choice but to scale back their production and lay off workers.
America’s oil and gas boom is boosting the economy, creating jobs and reducing prices for consumers. But producers need stable and reliable markets if they are going to make the necessary investments to extract, transport and refine oil and natural gas.
There are longstanding trade issues with China that need to be addressed. But if escalating tariffs and tensions result in China shunning U.S. energy, the president’s chance of reducing trade deficits and achieving energy dominance will suffer.
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.
