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Trump trade policy to affect key US energy buyers

11 Jan 2017, 3.22 pm GMT

Trump trade policy to affect key US energy buyers

Washington, 11 January (Argus) — Policies previewed by US president-elect Donald Trump and his choice of economic advisers raise the prospect of trade disputes emerging with Mexico and China, major buyers of US energy commodities.

"Mexico is engaging in unfair subsidy behavior that has eliminated thousands of US jobs, and which we are obligated to respond to," Trump said on 6 January, threatening a unilateral imposition of tariffs. He promised to re-negotiate the Nafta free trade deal with Canada and Mexico. Trump similarly has been vocal about the alleged unfair trade practices by China.

Mexico was the second largest importer of US oil and natural gas and products, after Canada, US Department of Commerce data for January-November 2016 show. Mexico imported $3bn worth of US energy commodities, mostly natural gas, accounting for 16pc of the total. China's imports of those commodities, mostly propane, totaled $1.2bn in January-November, about 6.3pc of its total US import bill.

China was a net energy products importer from the US, while Mexico's crude oil exports to the US make it a net energy exporter. But Mexico is a net importer of US gasoline.

Robert Lighthizer, a former trade official in President Ronald Reagan's administration whom Trump picked to head the office of the US Trade Representative (USTR), has called for the US to take a more aggressive approach to resolving commercial disagreements with China. Trump wants his nominee to head the Commerce Department, entrepreneur Wilbur Ross, to take a greater role for his agency in future trade talks. Trump picked his personal lawyer, Jason Greenblatt, as a special representative for international negotiations, including trade. Trump also chose Peter Navarro, an economist at the University of California, Irvine, to become his assistant for trade and industrial policy, heading a new office within the White House, called the National Trade Council.

Ross, Navarro and Greenblatt all will play an instrumental role in setting trade policy, a jurisdiction reserved primarily for USTR since the 1980s. USTR will continue in its technical role of leading trade talks.

The growth in Mexico's imports of natural gas via pipelines helped to turn the US into a net exporter of natural gas in November, for the first time. In addition to becoming an importer of US-sourced LPG, China was the destination for the first US LNG cargo to pass through the expanded Panama Canal and northeast Asia is becoming a major market for US LNG exports.

The uncertainty in trade relations could backfire by affecting the bilateral flow of investments, industry group US-China Business Council said today. It estimated China's direct investment in the US at $15bn in 2015, compared with US investment of $75bn in China that year. US investment in Mexico's energy sector is also slated to rise following the historic opening of the country's oil sector. The uncertainty hanging over US-Mexico commercial ties is forcing a downward revision of Mexico's economic growth, IMF western hemisphere department deputy director Robert Rennhack said yesterday.

Trump's promise of championing the US energy sector and achieving energy independence gives hope to the energy sector that it will be spared the effects of trade disputes. ExxonMobil, Chevron and Murphy Oil participated in the recent deepwater auction in Mexico. And US midstream companies such as Sempra Energy and Howard Energy Partners are investing in cross-border pipelines. But a rising wave of US protectionism could affect shale producers and the economy as other countries reciprocate, US Energy Information Administration's departing chief Adam Sieminski has warned. The agency projects the US becoming a net energy exporter by 2025, but it assumes open markets globally.

ExxonMobil's former chief executive and Trump's nominee to become the next US secretary of state, Rex Tillerson, in 2013 told an industry conference that "we have learned that open markets and free trade can bring the energy supplies that the world needs." Ross, the commerce secretary nominee, has been a proponent of the proposed Trans-Pacific Partnership free trade deal that Trump pledged to scrap.

But Trump's team said any member of his administration would be expected to follow his guidance on trade agreements. "People are coming to serve a Trump administration and implement a Trump agenda, not vice versa."

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