Two years ago, then-candidate Donald Trump laid out an “America First” energy plan, stating that under his presidency, “American energy dominance will be declared a strategic, economic and foreign policy goal of the United States. It’s about time.”
Making good on that promise two months into his presidency, President Trump began to rollback burdensome regulations on domestic energy production. He then moved on, approving the Keystone XL and Dakota Access pipelines and, most recently, releasing a new draft five-year offshore oil and natural gas leasing plan that could greatly expand the federal areas where drilling is allowed.
All of this bodes well for the long-term energy security of the United States which, thanks to the shale revolution, has made a remarkable transition from energy dependence to a nation on track to become a net energy exporter by 2022.
Yet all this good news is overshadowed by President Trump’s approach to trade. His threats to walk away from the North American Free Trade Agreement (NAFTA) and impose broad punitive tariffs on imported steel and aluminum are inconsistent with his commitment to rev up U.S. economic activity and energy output.
NAFTA affects nearly every sector of the U.S. economy. The three nations party to the 24-year-old agreement – the United States, Canada and Mexico – make up the world’s largest free trade area and account for $1.1 trillion worth of U.S. trade.
Trump has labeled the agreement a “disaster” and has called for it to be renegotiated. But his threats to withdraw from the agreement would hurt not only NAFTA’s core industries, like agriculture and auto manufacturing, it would also harm U.S. energy producers and consumers.
Energy trade between NAFTA participants provides the underpinning for North America’s growing energy self-sufficiency and remains a major economic driver for the United States. Mexico accounts for more than 60 percent of U.S. natural gas exports; Canada takes 61 percent of U.S. oil exports. Over the past two decades, NAFTA has forged an integrated North American energy market that benefits all participants. Americans benefit not only from the economic trade, but from jobs and more affordable energy.
As Karen Harbert, president and CEO of the U.S. Chamber of Commerce’s Global Energy Institute put it, “The U.S. energy economy has nothing to fear from NAFTA – and a lot to gain. A modernized NAFTA could help solidify the recent advances and create advantages for North American industry, advancing market-based integration of the energy sector, including energy production, transportation and processing, as well as electricity generation, transmission and distribution.”
While there’s little dispute over whether the nearly quarter-century-old trade agreement is overdue for modernization, scrapping it altogether would hurt the industries directly covered by NAFTA even more than the energy sector.
American farmers send 30 percent of all agricultural exports to Mexico and Canada. Since NAFTA was implemented agricultural exports to those countries have totaled $310 billion, with trade increasing by more than 300 percent. Abandoning the agreement could cause Mexico and Canada to respond with tariffs on U.S. agricultural goods, making American farmers less competitive.
U.S. automakers and their workers have also benefited under NAFTA. Global exports of American-built vehicles have doubled since the agreement went into effect. Since 2009, vehicle exports have increased by 52 percent to Canada and 51 percent to Mexico. Withdrawing from NAFTA could increase costs and make U.S. automakers less competitive globally.
After years of recession followed by a sluggish recovery, the U.S. economy is finally starting to gain momentum thanks to the Republican tax cuts. The president’s commitment to removing regulatory obstacles and open new federal areas to exploration, is hastening the country down the path to energy dominance.
Tearing up an agreement with our two closest trading partners would put the United States at a disadvantage with global competitors and undercut the economic investment incentive that American companies received under tax reform. In the next round of negotiations set for April in Washington, D.C., the Trump administration should work with Canada and Mexico to modernize and strengthen an agreement that has proven mutually beneficial to all involved.
Walking away from NAFTA now would dim the lights on a bright energy and economic future for all Americans.
Dan Eberhart is CEO of Canary, the largest privately-owned oilfield services company in the United States. He has served as a consultant to the energy industry in North America, Asia and Africa.
