Ratifying new Trump trade deal will secure America’s energy renaissance
By Andrew Langer
The White House has completed negotiations on the United States-Mexico-Canada Agreement — a modernized version of NAFTA, the 24-year-old free trade agreement that has transformed the American economy.
The USMCA updates NAFTA framework for the 21st Century, installing new rules for digital trade, intellectual property, and other crucial areas of the continental economy. The USMCA is also an exercise in restraint: It doesn’t touch parts of NAFTA that are working, especially trade provisions powering America’s energy renaissance.
Over the last decade, the United States has enjoyed an expansion of domestic oil and gas production. It has spurred economic growth, putting our country on a path to energy independence. This boom depends on continued free trade. Congress must ratify USMCA to ensure future our prosperity.
Signed by President Clinton in 1993, NAFTA eliminated tariffs and trade barriers between the United States, Mexico, and Canada and established a legal framework for litigating trade disputes.
At the time, the American energy market was heavily dependent on imports from the Organization of the Petroleum Exporting Countries and other foreign sources. But then, U.S. energy companies adopted extraction techniques such as hydraulic fracturing and horizontal drilling, enabling 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 gas powerhouse.
As energy production took off, NAFTA’s trade channels offered American firms a gigantic market. Mexico is now the biggest buyer of American liquefied natural gas, importing 4 billion cubic feet equivalent every day. Last year, roughly half of U.S. natural gas exports went to Mexico via pipelines.
Meanwhile, Canadian and Mexican firms ship huge volumes of raw energy products into the United States. Almost all heavy crude oil shipped out of Canada goes to refineries in the American Midwest where it’s turned into gasoline and other products. In turn, American companies sell refined products back. Mexico alone imports nearly 900,000 barrels of refined petroleum products every day.
This cycle is a powerful employment engine. 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, dramatically slowing North American energy trade.
Fortunately, the USMCA retains central components of NAFTA that made this boom possible. The renaissance can continue unimpeded.
For example, the USMCA 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.
Most importantly, the USMCA preserves a legal mechanism preventing Mexico from abusing American energy companies. The “Investor-State Dispute Settlement” tool allows firms to challenge breaches of trade law in international court, instead of relying on the Mexican legal system.
If Mexican officials tried to seize private property, impose unfair regulations, or otherwise disadvantage American companies, energy companies could appeal to an impartial tribunal to protect their investment. Those aren’t theoretical risks: The Mexican government has tried to nationalize energy companies before. By retaining this tool, USMCA gives oil and gas companies the confidence to keep working in the Mexican market.
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 the 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.
The viewpoints expressed above are those of the author and do not necessarily reflect those of The Independent.
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