Trump plays cat-and-mouse game with U.S. oil industry by flip-flopping on import tariffs

Source: By Dino Grandoni, Washington Post • Posted: Wednesday, April 8, 2020

 

President Trump arrives for the daily briefing on the novel coronavirus Tuesday. (Mandel Ngan/AFP via Getty Images)

To tariff, or not to tariff, that is Donald Trump’s question.

The president is threatening to use one of his favorite economic weapons to protect the U.S. oil industry, long loyal to him, from a flood of foreign oil uncorked by Saudi Arabia and Russia.

But in a tactic typical for a president who likes to be perceived as unpredictable, Trump is zigzagging wildly — from toying with imposing tariffs on crude oil from Saudi Arabia and elsewhere to publicly backing down from introducing any new border taxes. It’s a an erratic strategy to address an oil-price crisis that has brought the price of crude to a nearly two-decade low and threatens to bankrupt dozens of U.S. companies.

“The energy industry definitely needs the help right now,” said Dan Eberhart, a Republican donor and chief executive of the drilling services company Canary, who opposes tariffs. “Everyone is super eager to help, but doesn’t know what to do.”

The American oil industry has been hit by a one-two punch: The outbreak of the novel coronavirus has led to a dramatic drop in oil demand, all while Saudi Arabia and Russia have inundated the world with oil in a fierce production war that U.S. firms fear will ultimately leave them with a smaller share of the global oil market. Now, with low oil prices weighing them down, American firms are considering cuts in capital spending and production in order to stay afloat.

Trump has been playing a cat-and-mouse game with Saudi Arabia and Russia, alternatively threatening tariffs on imports and saying they should lower production on their own. Domestically, oil companies and their allies disagree on whether to implement tariffs on imports as they lobby the White House for help.

Several small to midsized firms that extract oil from shale reserves through “fracking,” as well as lawmakers like Sen. Kevin Cramer (R-N.D.), want import tariffs to protect their business, as fracking is more expensive than other traditional forms of oil production.  At the same time, major multinationals that operate Gulf of Mexico refineries built for processing foreign crude don’t want to lose access to their raw fuel.

During a White House meeting Friday with oil executives,Trump brought up the idea of hitting the Saudis and other foreign competitors with tariffs while top executives from ExxonMobil, Phillips 66 and Chevron pushed back against any new border taxes. Harold Hamm, the outspoken founder of shale producer Continental Resources who was also at the meeting, has been calling for penalizing what he sees as the illegal dumping of oil by foreign competitors.

Trump ended the meeting by leaving the option of issuing tariffs on the table, according to Cramer and American Petroleum Institute President Mike Sommers, both of whom attended the meeting.

“The president made the case that he would like that arrow in his quiver,” Sommers said, adding that Trump “had a better understanding” of the API’s opposition to tariffs by the end of the meeting.

Sommers added that “from our perspective, it was a good meeting” and that he appreciates the pressure the president is applying to Saudi Arabia and Russia. “It was a good tone to set,” he said.

The next day, during a news conference, Trump inched closer to the idea of imposing tariffs. “We’re going to take care of our energy business,” he saidSaturday, “and if I have to do tariffs on oil coming from outside, or if I have to do something to protect thousands and tens of thousands of energy workers and our great companies that produce all these jobs, I’ll do whatever I have to do. Okay?”

But on Sunday, Trump backtracked a bit. After repeating that refrain (“I would do tariffs, very substantial tariffs”), he said he doesn’t think he is “going to have to” issue any tariffs after all.

And by Monday, Trump was warming up to yet another idea: cutting U.S. oil production in tandem with the Organization of the Petroleum Exporting Countries. “Maybe we will, maybe we won’t,” Trump said. “But we’ll have to make that decision.”

While Trump weighs his options, the energy ministers from Russia, Saudi Arabia and other OPEC nations sit down — virtually, via video conference — on Thursday to discuss production cuts to lift the price of oil from $32 a barrel, where it closed Tuesday. Trump is under pressure from those counterparts to agree to cut production in the United States.

Yet unlike Russia or Saudi Arabia, the U.S. president has little power to stop American firms from producing oil if they want to. Trump appeared to acknowledge as much Monday, noting that “the cuts are automatic” as U.S. firms respond to lower prices.

Indeed, the Energy Information Administration said Tuesday it is predicting an average 11.76 million barrels a day of production through the end of 2020, which is a drop from a previous 12.99-million-barrel forecast. For the 2021 forecast, the nonpartisan agency said it is predicting 11 million daily barrels, a drop of 1.6 million from previous predictions.

Continental Resources, for one, said it will cut production by about 30 percent for April and May. Its founder, Hamm, is still been on a media tear for tariffs, granting interviews to the the Washington Examiner and Financial Times following the White House meeting.

“What we suggested to the president is to shut down dumping,” Hamm told the Examiner. “That’s not bailing anybody out. That is stopping something illegal or unfair.”

It was always unlikely Trump would make a decision before the OPEC meeting, since whatever decision that comes it will inform what Trump does next. “I don’t think anyone knows until the weekend,” said Stephen Brown, an energy consultant and former oil refining lobbyist.

“If they are his only option, it is politically advantageous to impose in a number of key states on a temporary basis,” Brown added of tariffs. “That said, it is a terrible idea from a policy perspective.”