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, his energy policies prevail.
At a time when U.S. oil production is at an all-time high, the president’s tariffs on metals — 25 percent on steel and 10 percent on aluminum — are raising the cost of pipeline and drilling materials.
{mosads}In the last few years, breakthroughs in extracting oil and natural gas from shale rock formations 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 its output from 2010.
That increased supply has put downward pressure on oil and natural gas prices — and consumers are benefiting.
Remember when even a minor rumble in the Middle East would push gasoline prices through the roof? Gasoline at the pump hit $4 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, or to tuck away in savings.
But those low gas prices are not guaranteed. Forces can push them higher — they approached $3 last summer — and one of those forces is the president’s steel tariff.
The tariff is meant to encourage U.S. businesses and consumers to purchase more American-made steel to reinvigorate the industry.
But pipelines that transport oil and gas to ports and refiners need a specific type of steel that is primarily made in other countries.
U.S. energy companies import an estimated 77 percent of the steel used in pipelines. There are only a handful of steel mills in the world 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.
Oil and gas production increases are putting pressure on pipeline companies to speed up their efforts to lay new line, which is the safest and cheapest way to transport oil and gas over long distances — or at least it was before the tariffs.
A 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.
Trump recently boasted that U.S. steel manufacturers’ profits are up. He also 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 nor the other countries hit by the steel tariff.
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 domestic manufacturers’ profits are up — and why they are spending much more on lobbying.
Those costs will 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 have the opposite effect.
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.
Because without an agreement, the money we would have saved from increasingly abundant energy will be partly offset by the money we will 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.