PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Crude Oil Exports to China Disappear (yes, this impacts U.S. small businesses)

By at 12 October, 2018, 10:57 am

by Raymond J. Keating-

Free and growing international trade is good news for American consumers, small businesses and workers – expanding opportunity, choices, competition and growth. Imposing barriers to trade, such as tariffs and quotas, achieve the exact opposite, including increasing costs and reducing opportunity.

While there are seemingly countless examples of the benefits of trade unencumbered by governmental costs and obstacles, consider the shift that’s occurred on the energy front – specifically in crude oil.

The oil and natural gas business has been transformed over the past dozen-plus years, with advancements in, for example, hydraulic fracturing and horizontal drilling making the U.S. the top energy producer on the planet. A part of this story has been exporting U.S. crude oil. Keep in mind that U.S. crude oil exports, minimal throughout the history of U.S. crude oil production, started moving up in late 2013, and later accelerating when the crude oil export ban (which had some limited exceptions) was lifted at the end of 2015. (See the following chart from the U.S. Energy Information Administration.)

The U.S. crude export ban was a self-inflicted policy wound. But now, another self-inflicted policy wound is having an impact on crude exports.

Argus Media reported on October 5th that U.S. crude oil exports to China, “amid the escalating trade war between the two countries,” disappeared in August, that is, crude exports to China declined from 384,000 b/d in July to zero in August. Argus further reported:

“Canada was the top destination for US crude in August, taking in 343,000 b/d. South Korea was second, importing 267,000 b/d and Taiwan was third with 198,000 b/d. China took an average of 377,000 b/d of US crude in the first seven months of 2018 and was consistently the first or second top destination for US crude.”

Argus noted that crude oil was removed by China from a list of targets of retaliatory tariffs. Apparently, though, that didn’t matter, as “Chinese state-controlled trading firm Unipec stopped buying US crude in August as relations with Washington deteriorated.”

What is the state of trade policy between China and the U.S.? It was summed up:

“The latest, third round of US tariffs and Chinese counter-tariffs went into effect on 24 September. The US tariffs now cover about half of overall imports from China, and the US administration has a fourth round of tariffs ‘ready to go’ on the remaining $267 bn/yr of imports. China has imposed tariffs on around $110bn/yr of products from the US, equivalent to 70pc of total imports from the country.”

Make no mistake, this very much is a small business issue, and not just as consumers of goods from China but as producers involved with exports to China. After all, consider that among U.S. firms exporting to China (based on U.S. Census Bureau data), 53.8 percent have fewer than 20 employees, 68.7 percent fewer than 50 employees, 78.4 percent less than 100 workers, and 92.1 percent fewer than 500 employees.

And then there’s the fact that most businesses in the energy industry are small enterprises. For example:

● 89.6% of employer firms among oil and gas extraction businesses have fewer than 20 employees;

● 77.3% of employer firms among drilling oil and gas wells businesses have fewer than 20 workers;

● 80.7% of employer firms among support activities for oil and gas operations businesses have fewer than 20 employees,

● 58.2% of employer firms among oil and gas pipeline and related structures construction businesses have fewer than 20 workers,

● and 51.5% of employer firms among oil and gas field machinery and equipment manufacturing businesses have fewer than 20 employees.

Undermining free trade quite simply undermines small business.

The U.S. needs a significant policy shift on trade. As noted in my testimony earlier this year before the U.S. House Committee on Small Business, I pointed out:

“Rather than raising costs to trade with China, the best path forward would be to enter into serious discussions that lay the groundwork for a China-U.S. free trade agreement. Through that process, the U.S. would be able to constructively advance the cause for open markets and property rights in China. And a free trade accord between the world’s two largest economies would considerably expand opportunities for entrepreneurs, small businesses and workers in both nations.”

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

News and Media Releases