Baker Institute expert: Mercantilist approach to trade policy ‘will not bode well for US energy security’

David Ruth
713-348-6327
david@rice.edu

Jeff Falk
713-348-6775
jfalk@rice.edu 

Baker Institute expert: Mercantilist approach to trade policy ‘will not bode well for US energy security’

HOUSTON – (Dec. 18, 2017) – While it is difficult to postulate how President Donald Trump’s approach to international trade will actually play out, any policies that raise barriers to trade “will not bode well for U.S. energy security,” according to a new paper by an expert at Rice University’s Baker Institute for Public Policy.

Credit: 123RF.com/Rice University

“The Trump Administration, Trade and Energy,” authored by Kenneth Medlock, senior director of the institute’s Center for Energy Studies, was recently published in the Institute of Energy Economics’ Energy Journal. The paper examines the degree to which the Trump administration is pursuing a mercantilist agenda and the implications of this for trade, energy markets and energy-market participants.

Mercantilism is the theory that trade generates wealth and is stimulated by the accumulation of surpluses (profitable trade balances), which a government should encourage through protectionist policies. When corporations, politicians and special interests demand control over imports through higher duties to protect local jobs and industries, they are resorting to mercantilism.

In his paper, Medlock analyzes potential implications of the North American Free Trade Agreement (NAFTA) renegotiation; threats to impose import tariffs and destination-based taxes, including the recently discussed Border Adjustment Tax; the formal withdrawal from the Trans-Pacific Partnership; and the president’s indicated preference toward bilateral trade negotiations.

Medlock said NAFTA has helped integrate the North American energy market. “U.S. trade with Canada and Mexico in energy commodities currently exceeds $140 billion annually, and last year the U.S. had an energy trade surplus with Mexico of more than $11 billion,” wrote Medlock, the James A. Baker III and Susan G. Baker Fellow in Energy and Resource Economics at the institute. “Mexico is currently the recipient of the majority of U.S. natural gas exports, and these volumes are expected to increase further in the coming years as new pipeline infrastructure is completed.”

If NAFTA remains intact, cross-border natural gas export infrastructure will continue to be “rubber-stamped” as it will not be subject to a national interest determination by the U.S. Department of Energy, Medlock said. “Any abolition of NAFTA would jeopardize future exports by subjecting them to study prior to being sanctioned,” he wrote.

NAFTA could also affect joint development opportunities in the Gulf of Mexico. “If NAFTA renegotiations were unsuccessful, U.S. Gulf Coast-sourced equipment and services for the offshore Gulf of Mexico would be disadvantaged,” Medlock wrote. “This would be exacerbated if Mexico responded by enforcing stricter local content requirements for Mexican Gulf of Mexico developments. Not only would this slow the pace of development in the Mexican offshore longer term, it would also reduce the economic benefit that would otherwise be realized in the U.S. Both outcomes compromise North American energy security.”

Globally, it is unlikely the Trump administration will limit access by foreign countries to U.S. energy exports, Medlock said. “It is more likely that the administration will take steps to facilitate energy exports,” he wrote. “This will carry spillover benefits for global energy markets and enhance energy security more broadly. However, if trade policy becomes restrictive in other dimensions — solar panels, steel, etc. — one wonders what the ramifications may be for U.S. exports of oil and gas. The last thing an increasingly globalized economy needs, less than a decade removed from one of the deepest recessions in history, is a trade war.”

To schedule an interview with Medlock, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775. The Baker Institute has a radio and television studio available.

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Related materials:

Paper: http://eneken.ieej.or.jp/data/7635.pdf.

Medlock bio: http://bakerinstitute.org/experts/kenneth-b-medlock-iii.

Follow the Baker Institute via Twitter @BakerInstitute.

Follow the Center for Energy Studies via Twitter @CES_Baker_Inst.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, Rice University’s Baker Institute ranks among the top five university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.