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Steel Tariffs, NAFTA Makeover Create Hurdles for U.S. Energy Buildout, Say Cornyn, Murkowski

A freewheeling discussion Friday morning uncorked rare criticism of President Trump by GOP Sens. John Cornyn of Texas and Lisa Murkowski of Alaska, who expressed concerns about the new tariffs and the potential makeover of the North American Free Trade Agreement (NAFTA) on the final day of CERAWeek by IHS Markit.

IHS Vice Chairman Daniel Yergin, who co-founded Cambridge Energy Research Associates in 1983, once again presided over CERAWeek in Houston, and he helmed the wide ranging conversation.

As Texas is the largest exporting state in the country, Yergin asked Cornyn what he thought of the steel tax, which would impose a 25% tariff on imports with some exemptions. A 10% tariff would be imposed on aluminum imports.

“The president feels very strongly that we have lost out on some of these trade agreements, and I’m sure he’s right on some individual trading arrangements,” said the Texas senator. “But I hope he doesn’t treat them as a ‘one-size-fits-all’ like this steel tariff,” nor treat it as an “incentive” for Mexico and Canada to redo NAFTA.

Trump has indicated Mexico and Canada would be exempted from the tariffs pending renegotiating NAFTA.

Cornyn said there are signs that withdrawing from trade agreements and becoming more isolationist as posing problems. He pointed to the administration’s decision to withdraw last year from the Trans-Pacific Partnership (TPP), a 12-nation agreement to expand U.S.-Asia trade that was negotiated during the Obama administration.

“On the TPP, 11 countries other than the United States have come together on a trading agreement,” Cornyn noted. “In the absence of the United States, China gets to set the rules by default as the largest economy in Asia.”

The same could happen if the tariff decision were to lead to a global trade war.

“We have to work with the president and try to make advances where we can and try to convince him that trade deficits aren’t the end all be all,” Cornyn said. “We want to have fair, free trade because it benefits the workforce and the country.”

Trump’s decision to impose tariffs are “populist impulses he ran on in targeted areas that have been the losers” across the country because of trade agreements, said the Texas senator. “I hope we can be more surgical in our approach…”

Asked by Yergin how Texas-based companies are responding to the tariffs, Cornyn said, “People are concerned. I’m concerned…”

He appeared to question Trump’s judgment and the advice he was getting about trade agreements. As an example, he said during a meeting with the president and other legislators, the president suggested completely withdrawing from NAFTA by simply issuing a notice of termination. He was “willing to walk away” from the agreement that opened up trading corridors with Canada and Mexico, Cornyn said.

“I said, ‘no, no, no, no, don’t do that. We can’t just simply walk away.’ A number of us said, ‘Mr. President, there is a number of tremendous benefits” that could be achieved by “right-sizing” NAFTA that “will be negated by the disruption of our trading agreements.”

Legislators have urged Trump to “work with us, listen to us…It continues to be a challenge,” Cornyn told the audience.

Murkowski also expressed concern about the administration’s apparent lack of understanding about the benefits of trade agreements.

“For Alaska, we share a pretty long border with Canada...it’s our fourth largest trading partner,” she said. Energy trade alone is “considerable for us. We recognize for us, as John mentioned, the positives that have built on through NAFTA. Does it need revisiting? Absolutely. But to threaten the underpinnings of that strong relationship built over the years, whether it’s energy trade or otherwise? Let’s be cautious here.

“For us in Alaska, it’s not nearly as significant as it is for Texas, but we’re all paying attention to this…” In addition, “tariffs send a confusing message our our allies,” said the Alaska senator.

Using the national security rationale to impose tariffs “invites other countries to use that,” Yergin noted.

“It’s a slippery slope,” said Cornyn. “We need to have domestic steel and aluminum operations that are productive here because we can’t be completely dependent” on imports “to build our cars, airplanes, ships...I get that. But a more nuanced approach is called for.”

Yergin asked about the energy industry’s concerns, particularly about higher costs to build pipeline and infrastructure.

“It’s a big deal up north,” said Murkowski. “We are trying again to build out so much of what we’ve been waiting for, on pipelines or infrastructure going into drilling operations,” including long-sought liquefied natural gas (LNG) exports and expanded drilling in the National Petroleum Reserve in Alaska.

“There’s been a lot of discussion about Alaska  LNG and the opportunities we will have,” Murkowski said. “But to build an 800-mile pipeline, where will we get the pipe? With the tariffs, it might be a situation that might add as much as $500 million to the most expensive infrastructure project that we have ever seen in this country.

“These are real numbers; this has real impact,” said the Alaska senator. “We are trying to build out on the energy promise up north and elsewhere. This is not coming at a good time for us.”

Other presidents, including George W. Bush, have imposed short-term tariffs, Cornyn said.

“This is the beginning of the story,” he said. “We have to stay close and engage with the president and the administration to make sure he’s getting good advice.”

Cornyn said he regretted the resignation of Gary Cohn, who directed the president’s National Economic Council. Cohn resigned on the tariff decision. Cornyn also questioned the advice of Trump adviser Peter Navarro, who is said to be responsible for bending the president to impose the taxes.

“We need to stick close to the president,” said Cornyn. “I’m sorry to see Cohn leave. I get a sense of Navarro that he has wrong ideas about trade. The president needs good advice and it can’t be from only one side of the equation.”

Added Murkowski, “We’re talking a lot about building things around the country. Certainly within the energy space, that has to be a priority. As with everything big, the devil is in how you pay for it.”

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