Opinion: New Trump trade deal will secure American energy
The White House just completed negotiations on the United States-Mexico-Canada Agreement. The pact is a modernized version of NAFTA, the 24-year-old free trade agreement that has transformed the North American economy.
USMCA updates the NAFTA framework for the 21st Century, installing some smart new rules for digital trade, intellectual property, and other crucial areas of the continental economy. But USMCA is also an exercise in careful restraint; it doesn't touch the parts of NAFTA that are working -- especially the trade provisions powering America's energy renaissance.
Over the last decade, the United States has enjoyed an unprecedented expansion of domestic oil and gas production. It has spurred economic growth while putting our country on a path to complete energy independence. This boom depends on continued free trade. That's why Congress must ratify USMCA to ensure our future prosperity.
Signed by President Bill Clinton in 1993, NAFTA eliminated tariffs and other trade barriers between the United States, Mexico, and Canada and established a sturdy legal framework for litigating trade disputes.
At the time, the American energy market was still heavily dependent on imports from the Organization of the Petroleum Exporting Countries and other foreign sources. But then, U.S. energy companies adopted new extraction techniques such as hydraulic fracturing and horizontal drilling, which enabled them to tap previously inaccessible oil and gas deposits trapped in underground rock formations. Natural gas production has jumped 50 percent since 1990, turning America into an oil and natural gas powerhouse.
As energy production took off, NAFTA's streamlined trade channels offered American energy firms a gigantic continental market. Mexico is now the biggest buyer of American liquefied natural gas -- importing 4 billion cubic feet equivalent of American gas every day. Last year, roughly half of U.S. natural gas exports were shipped to Mexico via pipelines.
Meanwhile, Canadian and Mexican firms ship huge volumes of raw energy products into the United States. Almost all of the heavy crude oil shipped out of Canada goes to refineries in the American Midwest, where it's turned into gasoline and other energy products. Then, in turn, American companies sell those refined products back to our neighbors; Mexico alone imports nearly 900,000 barrels of refined petroleum products every day.
This virtuous cycle is a powerful employment engine. Energy refineries support 108,000 American jobs -- many of those positions simply would not exist if it weren't for NAFTA. All told, the oil and gas sector supports 10 million American jobs and accounts for 8 percent of the national economy. Ripping up NAFTA without a replacement would have allowed the imposition of new trade barriers, which would have dramatically slowed down the North American energy trade.
Fortunately, USMCA retains the central components of NAFTA that made this boom possible. And the renaissance can continue unimpeded.
For example, USMCA prohibits tariffs on both raw and refined energy products. It requires an official commitment from the Mexican government to remain open to American energy investment. And it ratchets back tariffs on a special thinning liquid used in oil pipelines connected to Canada.
The United States-Mexico-Canada Agreement fulfills the central promise of the Trump administration to create jobs and secure a widely shared prosperity. The energy industry is already a powerful economic engine, and USMCA ensures it will keep revving.
Now, it's up to Congress to ratify the deal.
Andrew Langer is president of the Institute for Liberty.