The Energy 202: Oil and Gas Lobbyists Pressed for Exemption from Trump's Mexico Tariffs
Oil and natural gas executives are breathing a sigh of relief after the United States and Mexico reached a deal to avoid tariffs threatening to constrict a burgeoning flow of crude oil and refined fuels between the two countries.
But
the agreement is hardly going to be the end of trade tensions. Trump has shown
he is willing to disrupt relations with Mexico and China, two of the largest
U.S. trading partners, to a degree that sends shivers through the spines of
fellow Republicans on Capitol Hill, as well as many of corporate executives who
normally cheer the administration for easing regulations on businesses.
And
Trump's unpredictable behavior could still affect ratification by Congress of a
renegotiated North American free-trade deal known as USMCA.
Frustrated
by the flow of migrants at the southern border, Trump in a series of tweets
late last month threatened tariffs on all Mexican imports, which would have
started at 5 percent and could have risen to 25 percent.
That
tweet sent representatives for refineries along the Gulf of Mexico into a lobbying
overdrive.
"I
feel like I've aged 20 years since last Thursday," said Joshua Zive, a
counselor at the law and lobbying firm Bracewell, which representatives
refiners and other energy companies.
Their
ask: that the heavy crude oil making its way to Gulf refineries receive an
exemption under the threatened tariffs. Mexico is the third largest supplier of
crude oil to the United States behind Canada and Saudi Arabia, exporting
665,000 barrels per day on average in 2018, according to the U.S. Energy
Information Administration.
Refinery
representatives pressed their case, according to their offices, in a flurry of
phone calls to officials in the White House and at various other offices,
including the departments of Commerce, Energy, State and Treasury, and the
Office of the U.S. Trade Representative — anyone who would listen.
It
turned out they could stand down, for now. On Friday, the leaders of the two
nations announced a deal in which the Mexican government will seek to curb
migration at the southern border in exchange for averting the tariffs.
The
tariffs would have arrived at a particularly bad time for Gulf refining
companies using Mexican crude, which include Valero, Chevron, Shell and Premcor,
with the market for heavy crude tight in recent months because of political
turmoil in Venezuela and renewed sanctions on Iran, sapping oil from
international supplies. The market would have also been squeezed right before
the peak of the summer driving season.
Retaliatory
measures from Mexico could have cut even deeper, because energy is one of the
few economic sectors in which the United States has a trade surplus with Mexico
— a fact oil lobbyists tried to emphasize with the Trump administration.
"Right
now on the trade side, we're winning," said Chet Thompson, chief executive
of the American Fuel and Petrochemical Manufacturers, a trade association
representing U.S. refineries and petrochemical manufacturers. "It's a
substantial surplus."
What
Mexico could have targeted was the $30.5 billion in gasoline, jet fuel and
other petroleum products the United States sold to Mexico last year, compared
with the $15.8 billion of mainly crude oil and natural gas Mexico traded north.
"Where
could Mexico cause the most pain if they wanted to? Ag, and oil and gas,"
said Christopher Guith, acting president of the U.S. Chamber of Commerce's
Global Energy Institute.
But
the longer-term goal of the oil and gas business — one complicated by this most
recent trade impasse — is the ratification of the new trilateral trade
agreement between Mexico, Canada and the United States.
Oil
and gas companies convinced the Trump administration to carry over a number of
protections for investments in Mexico from the North American Free Trade
Agreement to the revised USMCA.
Energy
companies have built up infrastructure in Mexico ever since it opened its
borders to foreign drilling in 2013. Now, they are pressing Congress to ratify
the treaty to protect those investments.
Over
the weekend, Trump, too, pressed House Speaker Nancy Pelosi (D-Calif.) for not
yet scheduling a vote on the new trade agreement over Democrats' concerns about
labor and environmental provisions in it.
Pelosi
fired back by accusing Trump of "recklessly threatening to impose tariffs
on our close friend and neighbor to the south."
“Threats
and temper tantrums are no way to negotiate foreign policy," she added in
a statement.