Last week, GE’s Ideas Lab team featured an important piece from Peter Huntsman, the CEO of the Huntsman Corporation. In his article, Huntsman outlines how American’s affordable and abundant supply of natural gas is a “powerful tool” that must be used to strengthen American businesses fighting to remain competitive in the the global economy.
‘Give Us Your Gas Now, We’ll Talk Free Trade Later’
By Peter Huntsman December 4, 2013
America’s natural gas bounty is a powerful tool to open closed markets, improve our balance of trade, remove tariffs and barriers to U.S. products.
Earlier this month, the United States joined 11 Pacific Rim nations working on a new U.S. Asia-Pacific trade agreement. There is a lot riding on the talks, particularly for states and industry sectors that have seen rapid export growth, as Asian nations have historically been some of the most closed markets to U.S. goods. A new free trade agreement would promote innovation, economic growth and support job creation.
The best bargaining chip U.S. trade negotiators have at their disposal to open world markets is American natural gas. The shale gas revolution has transformed the country’s energy outlook – we are now the largest oil and gas producer in the world. Correspondingly, the international appetite for our energy is insatiable.
America’s natural gas bounty is a powerful tool to open closed markets, improve our balance of trade, remove tariffs and barriers to U.S. products. Many of our trading partners around the world don’t see it that way. Their position is, “Give us your gas now, we’ll talk free trade later.” That’s understandable – who doesn’t love a free lunch? But what’s truly puzzling is that the Obama administration agrees.
Exports of natural gas require authorization from the Department of Energy. If the natural gas is bound for a country with a U.S. free trade agreement (FTA) – like Canada – the export is presumed to be in the public interest. This arrangement makes perfect sense as we should reward countries who progressively commit to opening their markets.
For non-FTA nations – including many of the Pacific Rim nations– current law requires a separate determination that these exports are in the public interest. But the Department of Energy has recently approved four consecutive applications for natural gas exports to non-FTA nations, meaning American natural gas will start flowing to countries that continue to restrict access to their domestic markets. Eighteen more applications are awaiting a decision.
This raises an important question: why are we giving away this strategic commodity to foreign nations –rewarding protectionist behavior – that do not provide access to their markets for other American products? At the same time the United States is negotiating for greater access, we are ceding our most important leverage point for opening these closed Asian economies.
Consider our trading relationship with Japan. Historically, Japan has been one of the most closed markets to U.S. goods. Our trade deficit was $76.3 billion in 2012, up $13.1 billion from 2011. The country continues to be virtually closed to agricultural imports, maintaining a whopping 777.7 percent tariff on imported rice, a 252 percent tariff on wheat, a 360 percent tariff on butter, a 328 percent tariff on sugar and 38.5 percent for beef. Additionally, a variety of other barriers impede access to Japan’s automotive market.
Japan is the largest importer of natural gas in the world, making American gas exports a powerful hammer to break down protectionist barriers. Yet at the same time we are in the middle of trade talks to open the closed Japanese market, the Obama administration is undermining those efforts, giving away access to our natural gas to Japan without getting anything in return.
There is more to the picture than simply exporting a raw strategic commodity. America’s newfound abundance of natural gas is powering a remarkable manufacturing renaissance, which to date has generated more than $110 billion of announced investment in over 120 different manufacturing projects, responsible for creating more than 68,000 manufacturing jobs this year. America’s natural gas advantage is so significant that U.S. companies are beginning to “reshore” foreign operations back to the United States, a trend that could lead to an additional 5 million direct and indirect jobs by 2020.
More to the point, it is an economic truism that the export of finished value-added products accrues much greater benefits to the economy than the export of raw materials. A recent study by Charles River Associates bears this out. It found that increased manufacturing output from domestic natural gas creates twice the direct value for our economy and eight times as many jobs as gas exports alone.
Increased exports of all American goods and services – not just natural gas – opens markets, creates jobs and raises living standards for all Americans. America’s natural gas advantage presents a once-in-a-generation opportunity to increase free trade across the world. Many American businesses would prosper with access to closed Asian economies – particularly if there are open markets for finished U.S. goods. But it is foolish to expect our trading partners to buy the cow when they are getting the milk for free.