President Trump's decision to reopen parts of the federal government for three weeks may portend a hard line in the ongoing Sino-U.S. trade war, an issue that the oil and gas industry has been watching with increasing alarm, according to analysts.
Federal employees began returning to work on Monday. After five weeks of little activity, websites for the Energy Protection Agency and Department of Interior, including the Bureau of Land Management, had been updated.
The shutdown initially had a limited impact on the oil and gas industry in December, but concerns among trade groups that represent the industry began to rise by mid-January. A report by the FBI Agents Association, issued days before Trump agreed to reopen the government, included comments from a bomb technician who said the shutdown prevented him from meeting with oil and gas industry experts to discuss pipeline security.
In a note to clients Monday, analysts with ClearView Energy Partners LLC said said a comparison between Trump's demand for $5.7 billion for a wall along the U.S.-Mexico border and the ongoing trade dispute with China "may prove increasingly instructive" as last Friday's agreement to reopen the government plays out.
"If, in the absence of a bipartisan deal on border wall funding, the president follows through with his threat to build a wall by declaring a national emergency, it could presage similarly unrelenting trade pressure," ClearView said. "If the president backs down a second time on immigration, it could indicate new willingness to engage beyond his base (possibly through trade accommodation).
"That said, without a win on the wall, the president might push even harder on trade in an effort to placate a potentially restive base."
Last September, the Trump administration enacted a 10% tariff on $200 billion worth of Chinese products. Beijing retaliated with tariffs of 5-10% on more than 5,000 products imported from the United States, including liquefied natural gas (LNG) at 10%. Both sides vowed to enact additional tariffs if the other side retaliates. Analysts have been divided over whether the tit-for-tat tariffs will or will not impact a "second wave" of U.S. LNG projects.
Meanwhile, the longest shutdown of the federal government is estimated to have cost the U.S. economy $11 billion, including a permanent loss of $3 billion, according to the nonpartisan Congressional Budget Office (CBO). In a 12-page report released Monday, the CBO estimated real gross domestic product (GDP) was reduced by $3 billion in 4Q2018 and $8 billion in 1Q2019 as a result of the partial government shutdown. The office also estimates that as a share of quarterly real GDP, the level of real GDP was reduced by 0.1% in 4Q2018 and by 0.2% in 1Q2019.
The decrease in real GDP “happened in three ways," the CBO said. "Services were not provided by federal workers, federal spending on goods and services was temporarily lower, and a temporary reduction in aggregate demand lowered output in the private sector."
The CBO added that it appeared the negative effects from the shutdown were about to get worse, but conceded that the effects were difficult to quantify. "For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government," the CBO said. "Such factors were probably beginning to lead firms to postpone investment and hiring decisions. In addition, risks to the economy were becoming increasingly significant as the shutdown continued.
The shutdown began at midnight on Dec. 21 after the White House and Congress could not agree on funding for a wall along the U.S.-Mexico border. It affected about one quarter of the government, including Interior and the EPA. More than 380,000 federal employees nationwide were furloughed and an additional 420,000 were deemed essential and had to work without pay.