PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Energy Tariffs Would Hurt U.S. Businesses Already Hurt by COVID-19  

By at 2 June, 2020, 9:43 pm

by Raymond J. Keating-

A surefire way to make matters worse during a time of economic and political uncertainty is to impose additional governmental costs and controls, like higher taxes. And that includes taxes on imports – or tariffs.

Three things have been clear about misguided trade policies over the past three-and-a-half years:

● First, tariffs raise costs for consumers, and for U.S. businesses of varying types and sizes given that nearly all imports are some of kind of inputs for American enterprises.

● Second, other nations react to protectionist trade policies with their own tariffs.

● And third, as trade declines due to additional governmental costs, it serves as a drag on U.S. economic growth.

Unfortunately, amidst the current tumult, some in Congress are looking to intervene in energy markets with tariffs on oil imports.

The price of crude oil has plummeted since late February due to the economic contraction tied to the coronavirus pandemic. Amidst this crisis, Russia and Saudi Arabia have tried to play political games by failing to agree on production cuts. And there’s been much speculation about the motives of Russian President Vladimir Putin, perhaps as related to targeting U.S. shale producers. But this is a political sideshow that has gained far too much attention in media and political circles. Given his authoritarian tendencies, Putin might actually believe that he and Russia are somehow immune to the laws of economics. But, of course, they are not.

The reality, again, is that the decline in the price of oil is about the state of the economy, and when the economy starts to climb back, the demand for oil will rise and the price of crude will as well. In the meantime, price changes in the market provide signals regarding resource allocation and relative efficiencies between companies operating in the sector. Given the dramatic downturn, this can be a brutal process, but governmental interference in the markets only promises to make matters worse.

Nonetheless, we have some Members of Congress pushing for the imposition of tariffs. In fact, nine U.S. senators signed a letter to Commerce Secretary Wilbur Ross urging the investigation of “excessive dumping of crude oil by the Kingdom of Saudi Arabia and the Russian Federation and develop a swift reply” as a national security matter. “Swift reply,” of course, means imposing tariffs, as Senator Inhofe has made clear.

However, the last thing needed is for government to step in with tariffs that would only roil the markets more, raise costs, and distort resource allocation. Tariffs would raise costs for U.S. refineries reliant upon crude imports, and in turn raise energy costs for U.S. consumers and small businesses.

Does it really make sense to push policies that will hike prices at the gas pump? No, of course not.

Then there is the distinct possibility that other nations might follow or retaliate against U.S. tariff policies, creating additional costs and uncertainties. And as we have learned, other nations tend to retaliate with tariffs designed to target U.S. businesses and workers in particular industries.

Make no mistake, the U.S. largely is a small business economy. When factoring in employer and non-employer firms, 97.9 percent of U.S. businesses have fewer than 20 workers. And as SBE Council recently noted, most employer firms in various energy sectors are smaller businesses. Of course, and sadly, small businesses have suffered the most during this coronavirus crisis. Engaging in a trade war will only inflict additional harm.

In dealing with Saudi Arabia and Russia, the U.S. should not engage in economic policymaking that will inflict additional harm on U.S. consumers, businesses and workers. Misguided undertakings by the Saudis and Russians doesn’t justify misguided policymaking by the U.S.

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

 

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