Trump accomplished American energy dominance — then gambled it on a trade war

China and the United States launched the opening salvos in a trade war July 6 that had 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.

Then President Trump escalated things by suggesting imposing another $500 billion in tariffs on Chinese goods.

{mosads}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 two parties don’t defuse this conflict, China’s retaliatory tariffs could hammer America’s booming energy industry, wiping out thousands of current or future oil and gas jobs.

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. Crude oil production has also surged, making America the world’s leading producer of oil and natural gas.

The increased supply of fuel has caused prices to plummet — though recent events have, probably temporarily, pushed oil prices back up. Natural gas prices dropped more than 60 percent from 2008 to 2017. And crude oil prices fell to lows not seen in years.

Lower energy prices have greatly benefited 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. America is nearing complete energy independence — a feat thought impossible just a few years ago.

Indeed, today U.S. energy producers are exporting oil and natural gas to other markets. Last year, Trump praised these exports and called for America to achieve not just energy independence, but “energy dominance.” Already, U.S. natural gas exports to Europe have decreased our NATO allies’ dependence on Russian gas.

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, in Sabine Pass, Louisiana. But one in Maryland went online last March and several new terminals are currently under construction, which will create even more export opportunities. Just last year, Trump approved two major pipelines — the Dakota Access Pipeline and the Keystone XL Pipeline — to transport oil to refineries, and many more are currently under construction.

This infrastructure spending — virtually 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 could 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.  And the potential slowdown in sales while new buyers are found would strain storage capacity.

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, especially in pipeline construction.

With less revenue from exports, many companies would have no choice but to scale back their production and lay off workers. Few firms would continue spending on new infrastructure, further wiping out construction jobs.

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 for, say, Russian oil and gas, the president’s chance of reducing trade deficits, growing the economy, and achieving global energy dominance will suffer.

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.