Tariffs on imported oil: A bad idea at the wrong time

As the nation tackles this unprecedented pandemic, it’s encouraging that Congress is pulling out all the stops to assist needy Americans and to deal with the economic fallout. But that doesn’t mean that every idea promoted by legislators is a good one. A Senate proposal to slap tariffs on oil imported from Saudi Arabia and Russia fits squarely into that description.

The recent decision by these two countries to increase their oil production at the same time that demand fell off a cliff has resulted in an extremely difficult situation for U.S. producers. It’s understandable that policymakers would want to help — and there is a short-term allure of protectionist measures. Yet, as we have seen time and again, tariffs would ultimately hurt U.S. businesses and consumers. And in this specific instance, they would complicate America’s hard-won status as an energy superpower.

On March 20th, a group of senators led by Jim Inhofe (R-Okla.) wrote to Commerce Secretary Wilbur Ross, urging him to investigate Saudi Arabia and Russia for dumping crude oil into the U.S. and to consider “all of your authorities” in response. Sen. Inhofe then clarified in media interviews that he wants the Trump administration to impose tariffs under Section 232 of the 1962 Trade Expansion Act, a provision that allows the president to impose punitive tariffs for national security reasons.

Such a step would do far more harm than good.

First, we should recognize the benefits of free trade, especially in the energy markets. Five years ago, the U.S. lifted its ban on crude oil exports and also accelerated the approval of liquified natural gas exports. These policies have helped the U.S. to become the world’s leading energy producer. In 2019, for instance, annual U.S. crude oil production grew by 11 percent and reached another record level, at over 12 million barrels per day. Similarly, annual U.S. natural gas production grew by 10 percent in 2019, also hitting another record high.

Especially in a time of economic upheaval, it is more important than ever that America work with other countries and not retreat into the shell of harmful economic policies such as tariffs. Whether it is a coordinated global response by central banks or the transfer of necessary medical equipment across borders, cooperation will generate better results. And once this pandemic passes, we do not want to be stuck with tariffs that may be difficult to undo and could threaten the crucial international markets for our oil and gas products.

This isn’t just a theoretical point about the importance of free markets and free trade. Even the businesses that the tariffs are designed to help have come out against the proposal. Mike Sommers, CEO of the American Petroleum Institute, recently explained in an op-ed why the industry does not support tariffs. 

He noted that in the short term, tariffs would inflict significant damage at home. They would raise costs for U.S. refineries, create even more uncertainty for global supply chains and likely result in increased prices for consumers. Vital energy projects would be delayed because of the increased cost of “critical production materials not available in the U.S.”

Dave Spigelmyer, president of the Pennsylvania-based Marcellus Shale Coalition, also warned that tariffs could actually harm natural gas producers. As his letter to Secretary Ross explained, oil tariffs may stimulate crude oil production, “which in turn would cause the production of additional incidental or ‘free’ gas to be produced out of those crude-oil plays. The result is that flooded markets for gas would become even more untenable.”

In short, now is no time to retreat from the benefits of free trade and expose a fragile economy to the risks of a trade war. There is ample evidence of those perils: In a study last year, for example, academics from Yale, UCLA, Berkeley and Columbia found that the trade war with China had already resulted in $69 billion in annual costs to U.S. consumers and producers.

At some point, we will get through the current crisis. In the meantime, we don’t want to impose counterproductive policies that will not only hurt us in the short term but will leave us with a problematic framework for the long term. The American people deserve nothing less.

Jeff Kupfer is a former acting deputy secretary of energy in the Bush administration and an adjunct professor of policy at Carnegie Mellon University’s Heinz College.