Written by Chloe Marie – Research Specialist
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.
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.
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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