Steel and Aluminum Tariffs and the Impact on the Energy Industry
Issue
The President signed two proclamations on March 8, 2018 imposing a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum effective March 23, 2018. The tariffs will affect a number of industries, including the oil, gas, solar, and wind sectors by increasing a company’s project and operating costs.
Background
On March 8, 2018 President Trump signed two proclamations pursuant to section 232 of the Trade Expansion Act imposing a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum effective March 23, 2018 for an indefinite period of time because of the adverse effects of the imports on U.S. national security. Specifically the finding stated: “present quantities of steel articles imports and the circumstances of global excess capacity for producing steel are “weakening our internal economy,” resulting in the persistent threat of further closures of domestic steel production facilities and the “shrinking [of our] ability to meet national security production requirements in a national emergency.” Because of these risks and the risk that the United States may be unable to “meet [steel] demands for national defense and critical industries in a national emergency,” and taking into account the close relation of the economic welfare of the Nation to our national security….the present quantities and circumstances of steel articles imports threaten to impair the national security as defined in section 232 of the Trade Expansion Act.”
Imports from Canada and Mexico are temporally exempted from the tariffs as NAFTA renegotiations continue. Additionally, other countries may apply for an exemption if they negotiate new agreements to address U.S. national security concerns regarding their exports to the U.S. Most importantly, importers of steel and aluminum may request a waiver from the Department of Commerce if there is a limited supply of product produced in the U.S. or national security interests are involved. The Secretary of Commerce will issue waiver application guidance within 10 days of the President signing the proclamations on March 18, 2018. The proclamations specifically stated the Secretary may: “provide relief from the additional duties set forth in clause 2 of this proclamation for any steel article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and is also authorized to provide such relief based upon specific national security considerations.”
The option of a potential exemption for a pipeline developer becomes even more important when you consider the results of a recent study finding that imports account for 77 percent of the steel used in U.S. pipelines. In fact, the Center for Liquefied Natural Gas have already announced its intent to seek a waiver because building an LNG terminal requires five types of steel with some not available in the U.S. Additionally, projects and operations utilizing steel like: drilling rigs, pipelines, well construction, surface management, solar farms, and onshore and offshore wind turbines all face increased costs for imported steel. Finally, if the tariffs result in a trade war, foreign countries will likely purchase less U.S. energy.
Action
Companies and trade associations opposed to the tariffs are beginning to mobilize to seek exemptions and make their case to members of Congress about the negative impact the tariffs will have on their businesses and ultimately why Congress should legislatively eliminate the tariffs. Members of Congress are already expressing serious concerns, like Chairman Murkowski of the Senate Energy and Natural Resources Committee, who announced on Friday, March 9th at the CERA Week energy conference in Houston that the tariffs could increase the construction cost of the proposed Alaska natural gas pipeline by $500 million. Taking action becomes even more critical due to the fact of how quickly the tariffs take effect, March 23, 2018. You can read more about Chairman Murkowski's comments from CERA here or in an interview she recently gave to Buchanan's Energy Insider Interview Series.