Trump Administration’s Recent Tariffs in Conflict with “Energy Dominance” and Free Trade Goals

March 29, 2018

In the past few months President Trump has announced a number of new import tariffs: in January, it was tariffs on imported washing machines and solar panels, and just recently, this March, it is tariffs on imported aluminum and steel. Aside from the tariffs on imported washing machines, this raft of import tariffs portend a major impact on the U.S. energy industry. The import tariff on solar panels will of course have an impact on solar energy specifically, but the tariffs on aluminum and steel are opposed by virtually everyone in the U.S. energy industry.

Because President Trump has vigorously advocated for a path to U.S. “energy dominance” since taking office, it is worth examining just how President Trump’s latest tariff announcements might disrupt those efforts.

Representatives ranging from the Association of Oil Pipe Lines (AOPL) and the American Petroleum Institute (API) to the Solar Energy Industries Association (SEIA) have all condemned the most recent tariff actions. Even representatives of the coal sector—who would enthusiastically support increased domestic steel production, due to its coal-consumptive production process—have expressed caution about the newest policy. Luke Popovich of the National Mining Association has voiced the need for such caution, warning that “[i]t’s a muddle picture” until more details are known. For one, it’s not necessarily clear these tariffs will actually lead to increased domestic steel production, at least not in the short-run. Domestic steel producers are more likely to simply raise their prices. Second, about 75% of domestic coal production is sold abroad. If the latest tariffs spur a trade war with other nations, this could actually shrink American coal companies’ opportunities on the international market.
For solar, the steel and aluminum tariffs could actually add as much as 2 cents per watt to utility-scale solar projects. There is little indication the last round of tariffs on solar panels led to any increased domestic production, and SEIA also opposed these actions apparently meant to help the industry. In fact, even President Trump’s own party leaders have voiced disdain for the most recent tariff policies, so it is unclear exactly what constituency President Trump is ingratiating. Secretary Wilbur Ross’s Commerce Department is one of the few harbors of support for these most recent tariffs.
In response to this pressure from all sides, President Trump moderated his steel and aluminum tariff provisions by exempting Canada and Mexico. This will make a substantial difference in softening the blow: Canada is the top exporter of steel and aluminum to the U.S., and Mexico is the fourth-largest exporter of aluminum to the U.S. As President Trump stated, “Due to the unique nature of our relationship with Canada and Mexico . . . we’re going to hold off the tariff on those two countries.”
In any case, the legal reasoning to support the steel and aluminum tariff provisions—citing Section 232 of the U.S. Trade Expansion Act—is likely to come under fire. This provision is designed to provide for tariffs in the interest of national security, but the Trump administration has consistently rationalized the tariffs by pointing to the desire to protect domestic producers. Furthermore, there is little evidence our military even has a need for increased domestic steel and aluminum production; in fact, Defense Secretary James Mattis notified the Commerce Department this may actually threaten U.S. national security.
These actions are reminiscent of President Bush’s steel tariffs in 2002—many agree they were detrimental the economy then and will be again now. Former Bush administration staff members, like Chief of Staff Andy Card and Deputy Chief of Staff for Policy Josh Bolten, have argued as much.
It is unclear just exactly how these tariffs will affect the energy economy or the economy as a whole. One thing is clear: most everyone believes the impacts will be negative.