Coalition Cautions Oil Tariffs Would Harm Economic Recovery, Detract from America’s Energy Dominance

23 free-market organizations send letter to President Trump cautioning that oil tariffs would spark global retaliation, damage domestic industries and raise prices for American families.

WASHINGTON DC (May 20, 2020) – Today, a coalition of twenty-three free market, small business, and consumer groups joined the American Energy Alliance (AEA) in cautioning President Trump from enacting tariffs on imported crude oil as a means to help the hobbled oil and gas industry.

Thanks in large part to hydraulic fracturing, horizontal drilling and America’s prolific oil shale deposits, in 2019, U.S. energy production was higher than energy consumption for the first time in 62 years, thus attaining the long-held goal of “energy independence” attempted by every presidential administration since Dwight D. Eisenhower.

However, this does not mean the U.S. does not import crude oil. America’s oil refineries are not designed to take the oil grades currently being produced by U.S. shale fields. Tariffs on imported oil would increase costs for refiners while doing nothing to increase their use of U.S. shale oil. These higher costs would then raise gas prices at the pump, harming our nation’s refiners and raising energy prices for American businesses and families during these already challenging economic times. Unfortunately, tariffs would also harm U.S. exports because any U.S. tariffs would invite retaliation from our global competitors.

Thomas Pyle, President for the American Energy Alliance, made the following statement along with the release of this letter:

A text version of the letter is below.

Dear Mr. President,

Thank you for your leadership in this most challenging time. As you take steps to restore the economy, we write to express our concern about a misguided policy response being pushed from some quarters. Tariffs on imported oil would damage domestic industries and consumers while harming American global energy dominance.

We applaud your overall approach to energy policy. Your administration’s leasing and regulatory policies have helped increase domestic production and strengthened America’s foreign policy hand. The leasing on federal lands and waters that the administration has undertaken, and continues to undertake, will boost domestic production for many years to come, increasing American energy dominance and creating jobs. Oil tariffs, on the other hand, are the action of a weak energy country, and weak energy policy. The U.S. energy industry draws strength from its global competitiveness and U.S. consumers and employees benefit from our strong domestic refining capacity.

United States refiners are plugged into global markets. They use varying mixes of domestic and foreign oil grades depending on the specifications of each refinery and to balance global demand for refined products. These globally competitive refineries cannot simply switch over to American shale oil grades. The refineries are currently not designed to take the grades being produced in newly vast volumes from U.S. shale fields. Tariffs on imported oil would increase costs for refiners while doing nothing to increase their use of U.S. shale oil. These higher costs would raise gas prices at the pump, harming our nation’s refiners and raising energy prices for American families during these already challenging economic times.

This imbalance between domestic grade production and domestic grade demand is why the ability to export our energy surplus is so important. Unfortunately, tariffs would also harm U.S. exports. Any U.S. tariffs would invite retaliation from our global competitors, not just on crude oil but also on refined products. Years before crude oil exports were even allowed, the U.S. became a net exporter of refined products. These exports help reduce our trade deficit and support high paying domestic jobs. Tariffs on imported oil would make these refined exports more expensive and thus less competitive globally, in addition to retaliatory tariffs from other countries. This double blow to our refined exports would increase our trade deficit. Likewise, retaliatory tariffs on crude oil would decrease our ability to export our shale oil surplus, which is the key to our booming domestic production.

Against these significant harms, oil tariffs will have no positive benefits. Even if tariffs marginally increase the price of imported oil, U.S. domestic production is still far above current demand. Prices for domestic oil would therefore not increase with the imposition of import tariffs. This is because the core problem for U.S. producers is not imports, it is a loss of demand. The shutdowns and slowdowns in the U.S. and around the world mean that people are driving and flying much less. Until demand returns, prices for U.S. oil producers will not rise.

Ultimately, the best solution for U.S. oil producers is getting the economy back open and running. Oil tariffs do nothing to help open the economy, but would do harm to domestic industries and consumers. We urge you to reject this harmful, shortsighted policy.

The full letter and list of signatories can be read here.

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