A monumental trade decision looms large over the Trump administration’s hand-in-glove relationship with the fossil-fuel industry—and threatens to jeopardize potential energy-infrastructure plans.
The administration may slap trade barriers, including tariffs, on steel imports in the coming weeks. That prospect is sending some shock waves throughout the oil and gas industries, which disproportionately rely on steel products from Asia and elsewhere.
Energy experts, along with some Republican lawmakers, are now sounding the alarm bells, just a week after the Trump administration cracked down on imported solar panels and washing machines.
“Most of the pipeline capacity we build requires imported materials or imported finished pipe, and [trade barriers] would severely limit pipeline construction,” Kevin Book, a top energy analyst at ClearView Energy Partners, told National Journal. “It seemed as though the prevailing view was that the Trump administration had forgotten everything it had said about steel. Well, the Trump administration has not forgotten.”
Donald Trump, on the campaign trail in 2016 and before, vowed to revive American steel production as the domestic industry grappled with skyrocketing imports. Since taking office, Trump hasn’t taken real action to achieve that goal.
But the Commerce Department in mid-January sent the White House a recommendation on steel safeguards, using an authority in existing trade law that allows restricting imports on national security grounds. That memo is cloaked in secrecy, but the administration is expected to act on it by April.
At the State of the Union address Tuesday night, Trump signaled he’d continue to levy duties on imports to prop up domestic industry. “We will protect American workers and American intellectual property, through strong enforcement of our trade rules,” Trump said.
The president initiated national security investigations in both steel and aluminum last April under a rarely used section of a 1960s trade law. Despite expectations the Commerce Department would move quickly to prepare a recommendation, reports on both goods reached the White House in January—at the tail end of the 270-day permitted window.
That part of trade law, called Section 232, gives the White House sweeping authority to put in place tariffs and other trade remedies to counter national security threats, including economic well-being. But that statute hasn’t led to trade barriers since the U.S., Japan, and Taiwan voluntarily restricted trade of metal-cutting and -forming tools in 1986. Prior to that, the U.S. imposed restrictions on crude-oil imports.
The Trump administration initiated both the steel and aluminum investigations rather than the private sector, which typically does so.
The domestic steel industry, however, is prepared to fill the supply-chain holes left by restricted imports, Kevin Dempsey, general counsel at the American Iron and Steel Institute, told National Journal.
“There’s a huge oversupply of steel as the result of government policies in a number of countries … that are fueling repeated surges of imports in the U.S.,” he said. “Some of the largest increases in imports are energy pipe products. These are all products that are made and can be made domestically.”
Total steel imports increased by more than 15 percent in 2017, according to an AISI analysis of Census Bureau trade data. And energy-specific imports are leading the surge. Imports of oil country tubular goods, which are used in drilling, rose nearly 200 percent during that time period, while imports of line pipe, which are used in pipelines, increased nearly 63 percent.
Energy leaders such as American Petroleum Institute head Jack Gerard are calling for pipeline-expansion plans to be included in infrastructure reform, and a leaked White House document last week featured measures to expedite Interior Department approval of natural-gas pipelines in areas administered by the National Park Service.
The energy industry is warning the Trump administration to tread carefully on steel restrictions. Last year, the major oil and gas heavyweights, including API, the American Fuel and Petrochemical Manufacturers, and the Interstate Natural Gas Association of America, urged restraint in the investigation, arguing that industry growth is closely tied to imports.
Energy advocates are maintaining that position.
“Once you put tariffs on steel, it not only raises the price of imported steel, it raises the price of domestic steel, which obviously raises the prices for various oil and gas projects,” said Paul Nathanson, a communications consultant with the energy-lobbying firm Bracewell. “There are various types of steel used in pipelines that are just not made here. Is the domestic industry going to rebuild or open plants to start making this pipe? I don’t think that’s probably realistic.”
Nathanson noted that the White House isn’t guaranteed to move forward with trade restrictions, but the decision threatens the first real rift between fossil-fuel industries and the Trump administration.
Trump has made fossil-fuel development a key part of his political platform, and during his State of the Union address he touted a recent ExxonMobil pledge to invest more than $50 billion in the U.S. economy over the next five years.
“The administration has done a good job in removing some of the regulatory blockages that were preventing certain pipeline projects in the Northeast and pipeline projects in general from moving forward,” said Scott Janoe, a pipeline expert with the law firm Baker Botts. “My worry is that we’re getting it right on the regulatory side as far as approving these projects, but then if we make it more difficult with the raw materials, we could undo some of the gains we’re seeing.”
Some lawmakers are echoing those concerns.
“You’ve got to move the product,” said Rep. Frank Lucas, who represents a large swathe of oil- and gas-producing Oklahoma. “You’ve got to have steel pipe to move it. You’ve got to have steel pipe to drill the wells. You’ve got to have steel for the drilling rigs. Everything requires that resource.”