American Oil and Gas Reporter - January 2020 - 28

Special Report: U.S. Trade Accords
probably would," he recounts. "I was very optimistic it would
get done, because this deal is bigger than anyone in particular.
There are a lot of reasons for various sectors to pull together
and make this happen."
Long-Term Implications
Lawrence and Perez Arguello note that Mexico and Canada
are easily the largest destination for U.S. energy exports.
"The United States imports and exports more crude oil to
and from Canada than any other country," Perez Arguello notes.
"This dynamic trade relationship with a stalwart U.S. ally
improves U.S. energy security by ensuring the United States
does not depend on unfriendly crude suppliers such as Russia
or Saudi Arabia for the health of its crude oil exchange market
or domestic supply."
"The most important priority is to maintain one of the world's
best tariff-free marketplaces," Lawrence considers. "Consider
the recent increases in Gulf Coast production, especially associated
natural gas from the Permian Basin and Haynesville production.
We have the best high-growth outlet we could ask for, regionally.
In 2018, the United States' NAFTA partners took 75% of our
natural gas exports and about 30% of our petroleum."
"Since officials began reviewing NAFTA under the Trump
Administration, TIPRO has advocated for a fair trade deal,
which is vital not only to the Texas oil and gas industry, but to
our state and national economy across many different sectors,"
Longanecker emphasizes. "Throughout the negotiation process,
TIPRO has closely monitored, amongst other provisions the
review of the special dispute-resolution process included as
part of the original NAFTA agreement with the Mexican government, which provides some protection to multi-national
companies that invest abroad. Another important element TIPRO
fought to protect was the continuation of zero tariffs on oil and
natural gas products.
"With the USMCA, we look forward to continuing to expand
trade of U.S. oil and gas to export markets in Mexico and Canada."
Moreover, continuing the flow of U.S. gas into Mexico may
prove a particularly efficient way to keep it flowing even farther.
"There are longer-term implications, for sure," Perez Arguello
agrees. "Mexico is invested in improving energy integration
with its Central American neighbors. In May 2019, Mexican
President Andrés Manuel López Obrador revived a plan created
by the Economic Commission for Latin America and the
Caribbean focused on increasing power and natural gas flows
between Mexico, Guatemala, El Salvador and Honduras. With
U.S. natural gas free flowing into Mexico, improvements to
Mexican-Central American integration certainly could create
opportunities to expand the U.S. export market southward."
"Demand for natural gas, gasoline and diesel is going to
increase in Central and South America," Lawrence predicts.
"Those are very important markets for the United States. A lot
of factors must be taken into consideration, but hemispheric
trade is very important for our industry, and it shows relative
strength compared with the more fragile situation in the AsiaPacific region and even Europe."
And while the Trump administration already had lifted the
tariffs it had placed on Mexican and Canadian steel and
aluminum, that USMCA should help prevent their return is
welcome news to steel-hungry industries. Perez Arguello says
28 THE AMERICAN OIL & GAS REPORTER

USMCA stipulates that 70% of steel and aluminum used in automobile manufacturing must be North American metal. Therefore,
she says, American automakers will depend on the free exchange
of steel across North America more than ever, which will discourage new tariffs.
"Resuming the free flow of steel and aluminum across North
America is likely to increase supply chain complementarity,
where automobile parts and other manufactured metal products
flow back and forth across borders during production stages,
with U.S., Mexican, and Canadian workers executing complementary production tasks instead of competing with one another,"
she describes. "As supply chains become more intertwined internationally, the economic and political costs of disruptive
tariffs will grow, causing tariffs to be a less and less desirable
U.S. policy option."
Chinese Reversal
Before the phase one deal was signed, the U.S.-China trade
war was scheduled to deepen in mid-December, with new tariffs
on $160 billion in Chinese imports. Although published reports
in the preceding weeks indicated he might postpone those
measures, President Trump's early December remarks to reporters
during a NATO summit in London suggested prospects for a
deal had cooled.
"In some ways, I like the idea of waiting until after the
election for the China deal," he was quoted.
Media reports note that the Dow Jones Industrial average
fell almost 400 points the next day.
Conversely, when the administration announced reaching
the phase one agreement 10 days later, economic indicators-including New York Mercantile Exchange crude prices topping
$60 a barrel for the first time in three months-saw a bump.
"The trade war has dragged on far too long, limiting America's
energy potential and hurting U.S. consumers, farmers and manufacturers," the American Petroleum Institute stated after news
of the deal broke. "De-escalation is a positive step forward, but
we urge both countries to continue working toward a final
agreement that completely lifts tariffs on both sides and fully
restores U.S. energy export growth opportunities in China, one
of our most important global export markets."
API indicates the U.S.-China trade war has impacted the
U.S. oil and gas industry through U.S. tariffs on imports of industrial components from China as well as Chinese retaliation
on U.S. energy exports. "The United States and China are a
natural marketplace match when it comes to energy trade, with
growing U.S. natural gas and oil export capacity able to meet
growing energy demand from China," the group says. "However,
since the beginning of the trade war in July 2018, exports of
U.S. natural gas, oil and refined products to China began to
rapidly decline (because of) retaliatory tariffs."
The deal may not amount to the beginning of the trade war's
end, Lawrence assesses, but it still makes him cautiously optimistic.
"It is good news on achieving phase one, but phase two and three
will be much more challenging to reach," he cautions. "Tariff relaxation or cancellation is much easier to achieve than some of
the longer-term structural changes that are required."
Energy will be part of the $200 billion of new Chinese purchases during the next two years, Lawrence says, but more significant developments may follow. "According to various industry

American Oil and Gas Reporter - January 2020

Table of Contents for the Digital Edition of American Oil and Gas Reporter - January 2020