Trump administration officials are considering lifting their highly unpopular 25 percent tariff on steel imported from Mexico and Canada. Good news? No, because they’re considering imposing quotas instead.
The tariffs have enraged our Mexican and Canadian allies and imposed higher costs on U.S. businesses and consumers. U.S. energy companies, in particular, have suffered since many of the specialized steel parts used in oil and gas pipelines must be imported.
In response to these concerns, the administration is considering a quota system that would restrict how much steel U.S. firms can buy from Mexico and Canada.
Quotas may seem like a subtler way to impede trade, but in reality they could be even more damaging.
The free flow of goods and services, especially energy, across North America benefits U.S. consumers and workers alike.
North American energy markets are highly interconnected. About half of the U.S.’s 2016 crude oil imports came from Canada and Mexico. Nearly all of the heavy crude oil processed at Midwestern refineries and a large amount of heavy crude processed at Gulf Coast refineries comes from Canada.
In addition, Mexico is one of the largest importers of U.S. natural gas, most of which moves through pipelines.
North American energy trade depends on pipelines to transport huge amounts of fuel across the country and borders. Those pipelines depend on steel imports, which the administration began taxing last spring in the hope that higher-cost imports would force American firms to buy domestic steel.
But for the energy industry, buying domestic often isn’t an option. American steel manufacturers don’t produce many of the parts required for energy infrastructure projects. Only three steel mills make 30-inch thick pipes, and the highest-grade pipes aren’t available anywhere in the United States.
That’s why U.S. energy firms import 77 percent of the steel they use for pipelines.
It’s true there has been a global glut of steel, but the specialty steel used in pipeline production isn’t part of that glut.
Domestic steel firms aren’t interested in changing this status quo. Upgrading steel plants is costly. And the energy industry is notoriously volatile.
Pipelines are currently in high demand, but a significant drop in oil or gas prices or a major recession could dramatically reduce that demand in a moment’s notice. It’s simply not worth it for many American steel companies to retool their mills.
Tariffs are punishing American energy companies and steel quotas, rather than tariffs, might be worse.
At least with tariffs pipeline companies can purchase what they need, even if they have to pay more. With quotas, they may not even be able to do that, leaving projects unfinished.
That’s bad news for American laborers. A recent report from consulting firm ICF found that tariffs will delay construction of many current oil and gas pipeline projects, which will jeopardize American jobs. Fewer new pipeline projects also mean less cross-border energy trade.
Most of that energy is shipped across the U.S. through pipelines. Bottle-necking our ability to build those pipelines by limiting the supply of specialty steel has a negative impact on our ability to export.
If administration officials substitute steel quotas for tariffs, American energy firms would struggle to secure the parts they need. They could be forced to postpone or cancel many pipeline projects, harming the U.S. workers and consumers and threatening the president’s vision of “U.S. energy dominance.”
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews. This piece originally ran in The Hill.
