Written by Chloe Marie –
Research Specialist
Background
On
February 16, 2018, U.S. Secretary of Commerce Wilbur Ross (Secretary) issued
reports analyzing the effects of
aluminum and steel imports upon national security. The release of these
reports followed an investigation that was initiated on April 19, 2017, by
President Donald Trump under Section 232 of the amended Trade Expansion Act of
1962.
In
the report
relating to aluminum imports, the U.S. Department of Commerce (Department) observed
an overdependence on foreign aluminum production which threatens the U.S.
aluminum industry. For this reason, the Secretary recommended the imposition of
a new tariff on aluminum products and the further tightening of industrial
policies that benefit foreign aluminum imports. The report states that the
tariff adjustment should be designed “to enable U.S. aluminum production to
utilize an average of 80 percent of production capacity” even after exemptions
are granted.
Regarding
the effects of foreign steel imports, the Department found that, even though
U.S. steel production has remained stable since 2001, it is now being
threatened by an excess of global steel capacity that would put the country in
a far less competitive position compared to other countries. The report
also pointed out that domestic steel production is essential for security
matters. As a result, the closure of U.S. steel mills due to excessive foreign imports
could dramatically effect national security in time of emergency. The Secretary
therefore suggested to “take immediate action by adjusting the level of these
imports through quotas or tariffs … to enable U.S. steel producers to operate
an 80 percent or better average capacity utilization rate based on available
capacity in 2017.”
On
March 8, 2018, President Donald Trump supported the findings of the Secretary
that aluminum and steel goods are “being imported to the United States in such
quantities and under such circumstances as to threaten to impair the national
security of the United States.” Consequently, President Trump issued two
Presidential Proclamations resulting in adjusted import tariffs of 25% on steel
articles and 10% on aluminum
articles. Both of these
adjusted tariffs were imposed on imports from all countries.
Interestingly,
on May 31, 2018, President Trump removed previous tariffs exemptions for
Canada, Mexico and the European Union and implemented such tariffs stating
that the Federal government was “unable to reach satisfactory arrangements”
with these trading partners. The Trump administration, however, found common
ground with Australia and Argentina on both steel and aluminum and also reached
an agreement with South Korea and Brazil on steel.
Tariff Exclusions
On
March 19, 2018, the Department published
in the Federal Register a new interim final rule amending and supplementing the
National Security Industrial Base Regulations (15 CFR Parts 700-705) with regard
to the requirements and process for the submission of exclusion requests from
steel and aluminum import tariffs that were implemented under the Presidential
Proclamations.
The
Presidential Proclamations authorize the Department to grant exclusions from the
steel and aluminum tariffs, provided that “the steel or aluminum articles are
determined not to be produced in the United States in a sufficient and
reasonably available amount or of a satisfactory quality or based upon specific
national security considerations.” The new rule specifies that exclusion
requests will be granted or denied “primarily” based on the availability of the
product domestically. The Department, however, may review information regarding
the state of the steel and aluminum supply market in other countries “to the
extent relevant to determining whether specific national security
considerations warrant an exclusion.”
On
June 20, 2018, the Secretary announced
that the Department had granted a total of 42 exclusion requests for steel
articles; however, it also had denied 56 requests from 11 separate companies.
The Secretary declared that “this first set of exclusions confirm what we have
said from the beginning – that we are taking a balanced approach that accounts
for the needs of downstream industries while also recognizing the threatened
impairment of our national security caused by imports.”
Reactions from the
Oil and Gas Industry
The
implementation of the Presidential Proclamations has generated a response from
energy companies that directly use steel and aluminum articles during their
business operations. Following the denial of exclusion requests from two Texas
based-pipeline companies – Plains All American and Borusan Mannesmann Pipe US –
the American Petroleum Institute (API) issued a strongly-worded reaction. In a Press
Release dated July 17, 2018, API stated that “the administration’s
decision-making is not serving the interests of energy consumers and American
businesses, as these tariffs are expected to increase the cost of sourcing
steel for the oil and natural gas companies which in turn could increase the
cost of energy to consumers. This is not the way to achieve the
administration’s commendable goal of U.S. energy dominance.”
Similarly,
in a letter
to the Secretary dated May 18, 2018, the Center for Liquefied Natural Gas
(CLNG) expressed concerns about losing the possibility to import foreign steels.
The Center’s Executive Director Charlie Riedl wrote that “much of the steel
used in the construction of LNG terminals is specialty steel that must
withstand extreme conditions” before pointing out that “in some instances,
there are no U.S. manufacturers certified – or with sufficient capacity – to
supply the necessary specialty steel.” Thus, he urged the Department to grant
the LNG sector an industry-wide exclusion to the steel tariffs.
On
September 11, 2018, the Department published a revised
interim final rule following receipt of public comments. The
Department answered many of the concerns regarding the transparency and
efficiency of the product exclusion process and stated that “the Department
understands the importance of having a transparent, fair and efficient
exclusion and objection process” and that this revised rule provides
“significant improvements in all three respects.”
Impacts on the Oil
and Gas Industry
Though
President Trump’s stated intention of imposing U.S. tariffs on steel and
aluminum imports from foreign countries is to stimulate growth in the metal
market, and therefore stimulate the national economy, questions have been
raised whether tariffs will be entirely beneficial to the country, and more
especially to the oil and gas sector.
As
indicated in the prior section, many U.S. pipeline companies have long used
specialty steel and aluminum in the conduct of their projects. These specialty
materials may not be available domestically or may be in limited supply. As mentioned
by the outgoing API President Jack Gerard during the annual state of Colorado
energy luncheon, held in July 2018, the imposition of tariffs may “send a
chilling effect throughout the industry – particularly for the big players that
use a lot of steel for a lot of infrastructure.”
Some
even worry that U.S. tariffs on steel and aluminum imports could interfere with
national security by creating a resource constraint for pipelines that may
jeopardize the quality or completion of pipeline projects. In this regard, the
President of the Interstate Natural Gas Association of America (INGAA), Don
Santa, noted
that “imports of both pipeline-quality steel and pipe products are necessary
for timely construction of the new pipeline infrastructure needed to link
natural gas producers with industrial, power generation and residential
consumers, and ensure our national security.”
Furthermore,
various stakeholders from across the oil and gas industry have raised concerns
about an increase in the prices for steel and aluminum, which will correlate
directly to increases in domestic production costs for manufacturers. These
increased production costs could result in higher energy prices for customers.
Questions also have risen among the
industry stakeholders about impacts on the overall supply chain when President
Trump, in May 2018, removed U.S. tariff exemptions on steel and aluminum
articles from its traditional trade allies – Canada, Mexico, and the European
Union. API’s outgoing President Jack Gerard declared
being “deeply discouraged” by such action and warned the Trump administration
that “the implementation of new tariffs will disrupt the U.S. oil and natural
gas industry’s complex supply chain, compromising ongoing and future U.S.
energy projects …” INGAA President Don Santa also expressed
his dissatisfaction, stating that “the administration’s decision to immediately
impose a 25 percent tariff on steel imported from our long-standing allies of
Canada, Mexico and the European Union is very troubling to the US pipeline
industry and inconsistent with the administration’s long-standing goal to
capitalize on our nation’s energy abundance to help bring low-cost energy to
American consumers.”
The industry also is concerned
about the impacts of retaliatory actions from these countries as well as those
from China. Indeed, China is one of the world’s largest importer of natural
gas, a significant portion of which comes from the United States. Some
commentators have pointed out that retaliatory actions on U.S. liquefied
natural gas from China could cause a significant shift in the energy market.
These concerns are beginning to manifest as China announced in August 2018 it would
impose retaliatory tariffs on $60 million worth of U.S. goods, including
liquefied natural gas.
Conclusion
The recent
administrative actions relating to international trade have raised concerns
among many different economic sectors in the United States. The imposition of
tariffs on steel and aluminum imports, in particular, has caused many industry
participants and observers to question the economic spinoffs of these tariffs
upon the oil and gas industry. There is concern that these tariffs will redefine
the contours of international trade relationships between the U.S. and its
allies, and thus could significantly impact several industries with the oil and
gas, and pipeline industries being on the forefront. The economic consequences
of these adjusted import tariffs have not yet been fully assessed, but many oil
and gas stakeholders expect adverse outcomes to occur.
This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.
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