U.S. oil industry set to break record, upend global trade

Taxes including tariffs slow the economy so the economy would not have grown as large and would have slowed exploration or it would have been offset against any tariff gains

Tariffs do not slow our economy down at all. Tariffs reduce demand for foreign goods which has no effect here. We took the unemployment/economic hit up front when we offshored and did the creative destructive thing. I guess closing factories and laying off millions had no effect on the economy at least according to you..

Tariffs and the decrease in demand only affects workers in places we import from. It stimulates our economy with domestic industries reopening, construction of new plants and hiring of factory workers. Tariffs would cause and an economic bonanza here. Again you have it backwards.

And we should continue to develop our renewable energy sources so we can continue to dominate the plastics industry for the next centuries by not wasting oil to do what renewables can do. Now that oil is moving up past $65 a barrel, a lot of fracking will get back on line.

In your world there is no such thing as Supply and Demand. Tariffs increase prices which cuts demand leading to over supply.

Cutting our international trade hurts our economy in many ways, not the least of which is a restriction on the Division of Labor leading to higher costs because too little is produced.

The Export Multiplier is positive.

Tariffs do not stand alone or get passed without retaliation. It is a pissing match between skunks.

Your ideas of the costs and benefits of tariffs are ass-backward and would require the disappearance of the laws of economic life.

In your world there is no such thing as Supply and Demand. Tariffs increase prices which cuts demand leading to over supply.

There is free trade and free markets inside the USA for Americans to trade and do business with each other. Supply and demand works just fine INSIDE the USA. Like our founders envisioned. Globalists like you were hung back then. And rightly so.

Cutting our international trade hurts our economy in many ways, not the least of which is a restriction on the Division of Labor leading to higher costs because too little is produced.

The USA can and should be self sufficient in all things except tropical fruit and petroleum. There is abundance galore here in everything from human capital to natural resources. There is no need for any foreign commerce at all except in very few circumstances. And no that doesn’t make one an isolationist either. Just because I don’t want import crap doesn’t mean isolationism.

The Export Multiplier is positive. Tariffs do not stand alone or get passed without retaliation. It is a pissing match between skunks.

I’ve explained to you dozens of times that our exports face an average trade tariff of 8% while we charge less than 1% tariff. We are already being retaliated against. So when will you comprehend that?

Your ideas of the costs and benefits of tariffs are ass-backward and would require the disappearance of the laws of economic life.

Bull. My idea would strengthen the USA both economically and strategically in case of general war.

You can be a patriot or a globalist but not both. You'd be wise to heed those worlds.

You idea that the Founders were some type of Fascist shows a historical ignorance equal to your economic reasoning power.
As a matter of fact, those from the South were opposed to tariffs because of its unequal impacts.

What works within the US works just as well in international trade. Taking advantage of the international Division of Labor makes this nation wealthier and others as well.

Artificially raising prices domestically is no way to create wealth. Reductions in productivity do not increase wealth overall. Self sufficiency is impossible without a collapse of international economy and a huge recession/depression. Resources placed in unproductive (relatively) activities reduce national wealth.

Far better for your purposes would be a subsidy program not a tariff. The damage is much less, though it is still there because it comes from federal involvement in the economy almost always a bad idea.

It is obvious that you are out there on a limb since you refuse to tell us WHO supports your ideas. What books or theory supports you? Outside of anecdote where do your ideas come from?

You need to study the history of the Depression to see the result of ever higher tariffs, it was a race to the bottom.

Do you understand the implications of the Division of Labor on the economic process? Even a little?

Or Marginal Cost of Production?

BTW taking advantage of the DoL is not because of arbitrage.
Arbitrage is the situation where prices differ in different markets for the same commodity and never last long. There is no moving of labor from market to market as is the case for foreign exchange markets. Labor does not flow to markets to adjust the difference in wages as would be the case in true arbitrage.

You idea that the Founders were some type of Fascist shows a historical ignorance equal to your economic reasoning power. As a matter of fact, those from the South were opposed to tariffs because of its unequal impacts.

Your total mis-understanding of history is phenomenal. Wow, where to start here. The USA at it’s being was protectionist. The USA didn’t fight a war against the British, and it’s mercantile policies, to just throw open the market to duty free trade. Washington was an agrarian by nature and Southerner by birth. He was not an industrialist in any way but he knew a tariff would benefit both industry and raise revenue. So the Agrarian-in-Chief Washington, signed the first tariff act in 1789.

What works within the US works just as well in international trade. Taking advantage of the international Division of Labor makes this nation wealthier and others as well.

Wow, again you have it bass ackward again. Circumventing US labor via international labor arbitrage and charging them an income tax is evil. We are importing the third world poverty while idling out workforce and killing our once mighty industrial base that are military would need in an emergency. Your globalist attitude is what makes your lack of insight more apparent with each post. The world ahead of the USA? NOT! Trump won to fight people like you politically.

Artificially raising prices domestically is no way to create wealth. Reductions in productivity do not increase wealth overall. Self sufficiency is impossible without a collapse of international economy and a huge recession/depression. Resources placed in unproductive (relatively) activities reduce national wealth.

Tariffs increase the overall wealth of the nation at the expense of globalist corporate profits. The USA would be MUCH more wealth and way less in debt if the 50,000 factories closed since 2000 were still operating. That is fact. You cannot have a reduction in productivity if a factory is closed down and shipped overseas. That is a 100% reduction in productivity! The loss of wealth is staggering when we close our means of production. Communities literally die. Socialist are having a field day picking over the carcass you globalist are creating.

Far better for your purposes would be a subsidy program not a tariff. The damage is much less, though it is still there because it comes from federal involvement in the economy almost always a bad idea.

That is stupid. I can’t even respond to such poppy cock.

It is obvious that you are out there on a limb since you refuse to tell us WHO supports your ideas. What books or theory supports you? Outside of anecdote where do your ideas come from?

Well the preamble of the first tariff act spells it out clearly. Plus all the other once third world countries like China and S. Korea are prospering behind a wall of tariffs while getting free access to our markets proves tariffs work. And then there is you. You must feel I am a threat to your ego challenging your core beliefs about failed economic policy. You seem to never want to let it go like a child you have to go tit for tat. If the world is on your side and I am just a crazy loon then why reply to me? You still haven’t answered that.

The Tariff Act of 1789, was the first major Act passed in the United States under its present Constitution of 1789 and had two purposes as stated in Section I of the Act which reads as follows;

"Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise:"[1]

Simple and to the point and it explains everything.

You need to study the history of the Depression to see the result of ever higher tariffs, it was a race to the bottom.

OK the Smoot Hawley act only affected 1.5% of the economy. You know for a fact that 1.5% of GDP cannot cause, worsen or lengthen a recession let alone a depression. It’s like talking to a rock with you.

Do you understand the implications of the Division of Labor on the economic process? Even a little?

I totally understand it and it works INSIDE the USA to the betterment of the US economy. Done globally it leads to disaster for US and helps only marginally the sh!thole world. This is where politics and economics mesh. The people will not be circumvented by you globalists. You will be beaten politically or beaten physically in civil hostilities one day. But you will be defeated eventually because the debt and the wealth destruction cannot go on much longer.

Or Marginal Cost of Production? BTW taking advantage of the DoL is not because of arbitrage. Arbitrage is the situation where prices differ in different markets for the same commodity and never last long. There is no moving of labor from market to market as is the case for foreign exchange markets. Labor does not flow to markets to adjust the difference in wages as would be the case in true arbitrage.

Again you make no distinction between domestic markets and global markets. You are incapable of thinking in those terms. This is why in the past the noose was needed and may be needed here one day.

We had a tariff because that was the only feasible means of raising taxes and the government had to be funded. It was understood by those familiar with economics that a tariff retarded growth in the overall economy. So we had no choice.

It was also a special case for protection because our economy had been deformed by colonization and needed to be properly adjusted to the world market not just the British. The tariff had several functions and combined a revenue tariff with a protectionist tariff it was not meant to be permanent. Protecting inefficient and less productive firms was not their intention.

You can say that a tariff increases overall wealth as many times as you like but that is not and cannot be true. Less productive firms draw resources from MORE productive industries hence productivity MUST drop and wealth creation slowed. It is simple LOGIC.

“Labor arbitrage” does not exist unless you assume free movement between countries and even then it is iffy.

Industrial base is doing fine and will be even better in a year. We will never make low-price crap again. We make equipment of immense sophistication and high value. Yesterday’s industrial base will change to retain its top position.

China’s tariff effects, for example, all foreign auto manufacturers the same so we are not at a disadvantage to car makers anywhere. That is generally the case with other products.

And China is no competitor in the high value products.

I reply to you because you are a wealth of incorrect ideas so it tests my ability to respond to such folly. Intriguet reasoning is involved in getting to the bottom of these issues.

Ignore the International Division of Labor.
Pay no attention to the markets which have evolved to an optimum when the government stays out of them.
You want to restrict citizens choices as to what to do about spending their money.
You are blind to the fact that a tariff is NOT paid for by foreigners IT IS PAID BY THE CONSUMER.

Yeah that is a program for success all right, a government imposed price hike.

Another reason I respond is to defend Freedom vs government every time.

Great, great post, info., and observations. That pretty much “fills in” and substantiates what I’ve been thinking and reading — but my time to research is very limited.

I can live with $60 oil (In 2018 $$) if it helps secure the same in the future...

Thanks!

BeauBo’s post (#32) to me is very good. I take it that, to grossly oversimplify, actually the biggest factors in medium term oil prices are (in order of effect):

1) Global demand / economy. I will take a wild guess here and estimate that it can take production 3-5 years to catch up with strong sustained global demand. It **should** take less time, but there are feedback and feed-forward mechanisms in place. In the US for example, as production ramps up, that accelerates our overall economy, which creates more demand, which in turn sustains highish prices, which... But overall, I agree with BeuaBo that there is a net gain for the US.

2) US fracking production (as part of our overall production. Probably Canadian and other sources can be added here too.) This is a VERY powerful long term force, but in the medium term global demand and OPEC production cuts combined can “beat” it. Obviously short term supply interruptions can also overcome US production, at least so long as we import substantial qty’s of petroleum.

3) OPEC & “friends” policy and production. This IS a strong medium and short term term factor, as we see presently. Over time, it “can” be overcome, especially as the global economy will cycle, but this may be a decade long “project”. It will help considerably for the US to maintain a producer friendly environment — for a decade or more. So far, we are only 1 year in, and really not even that long when one considers the very considerable “process” it takes to right the ship. I would say that the environment will be “really right” if Pres. Trump can get his way in this area over the next 2-3 years.

Keep in mind that if OPEC / Russian wishes were truly winning, with present strong demand trends, oil would almost certainly be back over $100 / barrel.

BeauBo, do you concur?

Yes, I concur with what you said, and with your conclusion that prices would likely be over $100/barrel now, if not for the surge in US production (the fracking revolution).

The only thing I would point out, is that we are more than one year into this major shift in the oil market. US production has been rising sharply for the last few years (despite the Obama Administration's regulation), driven by the new technologies, that have made it much cheaper and quicker to produce oil by fracking.

Since 2012, the US production has been in a period of explosive growth. OPEC and Russia joined forces in 2016 to try to starve off the Frackers (who are private companies rather than State oil companies that run most of the rest of the world's production), trying to bankrupt them with low prices.

The frackers just improved their technologies and cut their costs, and kept taking more of the market. Now it is clear that the attempt to kill American frackers has failed, and America is shooting to become the world's largest producer, with no end in sight to our growth.

Check out the steep growth curve that fracking produced - and natural gas is growing like this too. Now we are hitting 10 million b/d. Every year is a big change. If this keeps up for a decade, Wow!

Hey, “a.s.”, “c.v.”, I’ll comment (and probably get slammed from both sides!)

I disagree with cv about tariffs as a general “tool” to use - we’ve been back and forth on that in the past and I don’t have time to re-argue that again tonight! Suffice it to say that having been in industry, my experience is that things we do to hamper ourselves, and bad trade deals, do more damage to US industry than, say, cheap labor overseas. Tariffs all-around to “fix” that in general will do more harm than good. Instead, reducing and simplifying regs will help, we’ve now made some progress on taxes, and I think we badly need to incentivize company job training and education of new employees — instead of relying on “the State” to do that. And so on.

However, I also certainly think that in some specific areas, such as to protect defense related industries, tariffs can be useful or even necessary. That does cover quite a bit of ground: Assuming we do not go isolationist (almost guaranteeing at least a 100 or more nuclear warhead exchange in the next 50 years or so, IMO), the next most alarming prospect is a more conventional war in which the US may have to field a force of a few million or more soldiers for a protracted period, something like WW2. That is, I expect someday a conflict that requires a true “national effort”, not these relatively minor affairs we’ve been in since WW2.* I don’t expect such in the next 10 years or so, and hopefully it will not occur in my lifetime, but... I think the likelihood of such a war is at least 50% in the next 50 years or so. If we get another Obama after Trump, that goes to 70%. If we get 16 years of “Trump-Pence-ism”, make it 40%.

*Note that even in these minor wars we have had sometimes unforgivable war supply shortages.

This is very problematic if one doesn’t have the necessary industrial base: Factories to provide even things like boots that will wear well with hard use, and not also have severe shortages at home, are essential.

a.s., you say our industrial base is doing fine and will do better soon (true, on a $$ basis), and we don’t need to make low end crap. (likely true again.) Companies like Toyota and Subaru are doing quite well, manufacturing in the US. But our industrial base is still NOT employing the MANY millions who have dropped out of the labor market entirely — a market much too dependent on low to low-mid paying service and health care jobs. And you entirely ignore “mid-end” products, which is where a great deal of US production has disappeared. Let me give you an example:

Up to just a couple years ago, I was involved in the development of a consumer product that was targeted to (roughly) the top 10 - 1% of that product market. That is, we expected the pricing (roughly $1300.00 “street price”) to exclude (too high) 90 % of consumers interested in such products (and really, more likely, more like 95% of consumers of such products, but we might convince a few in the 90-95% range to spend more money.) The top 1% or so we expected to be interested in more exotic, pricey products (tho’ a few might purchase for their kids, etc.) This company has US production facilities, excellent design and production engineering, and has done well for many years, creating great brand reputation. Surely we could make this product competitively in the US, right?

Are you kidding? It was not even close. At best, we thought it might work out where we would bring in subassemblies and do final assembly and QC at our factory. Cost would be higher than bringing in complete assemblies from overseas, but, we would hopefully have fewer rejects, and catch more problems before they got out into the field. (Chinese companies love to claim they are ISO [QC] this ‘n that, but the reality is a lot uglier. Apparently, even many of the best just lie. Or something, because, well, “ridiculous” stuff gets past their QC far too frequently.) Eventually, the Marketing Dept. killed the project, choosing instead to focus our resources elsewhere. At least the company allowed a couple of us engineer / tech types to keep prototypes @ home to “continue field testing”. :-)

I ran into the above sort of thing (well, not that very last part) over and over, since ~ year 2000 especially. Entire industrial bases just dried up. I cannot accept that US industry is healthy when in area after area after area, US production can only compete in the top 5% (or less!) of the market!

Now let’s go back to Subaru: 2017 Outbacks for the US market were made in Indiana... but with a total domestic content of only 42.5 percent. (That said, the Toyota Camry is 75% - not too bad... Note that these figures vary a bit depending on the analysis — for example, the 75% mentioned does not really reflect the profits going mostly back to Japan, R&D done there, etc. And... How many parts come from a potential adversary: China? Hmmm...)

Can we really depend on Toyota to produce APC’s for us in 2050, if push comes to shove? Or will, say China, have leverage over them, then? Or will certain types of parts come only from adversary countries? Do we want to bet our soldier’s lives, or our freedom, on that?

Another example: The medium price General Tire “Altimax” snow tires I bought recently (and the same ones a few years ago) are made in Germany. They are flat out some of the best snow tires around, especially for the money, and for sure nothing made in the US seriously competes with them. Now, seriously, “pardon my French”, but, WTF?!! The freaking socialist GERMANS can make and ship to us a better tire for the money than US companies can make here??

Less serious, perhaps, but still illustrative: USPS subsidizes cheap shipping for 3rd world sellers / shippers selling to US customers, by charging higher rates to US shippers. So, if I order this really great little flashlight from China (way overrated, but still brighter than all get out, plus it has “zoom”, 10 for $17.50, free shipping), yes, they can ship ‘em for free. But I get clonked on cost if I ship a Christmas package to my out-of-state brother. Or if a US seller wants to sell those flashlights individually, even if they bought in such bulk that their cost per unit approached “free”, shipping even locally would make the item more expensive than a consumer buying one & shipping it from China! Who in bloody hell determines such policies???!!!

A bit of an aside: The problem I see with Chinese import tariffs is that basically nobody can sell all sorts of items into China at reasonable volumes & prices. I don’t give a hoot as to whether the French or anybody else have the same problem trying to sell, say, motorcycles into China, as we do. The point is that, for example, Harleys are actually quite prized in China, and presently there actually is a reasonable potential customer base (small% of population x huge population), but Harleys cost 2x there what they do here! WE can’t effectively sell there at all. (Source = NBC story, a few years ago.)

Last, a.s., you mention that in the early years of the US, our economy had been “deformed”. True. But it’s only fair to point out that our economy in the last 50 years or so has been pretty mangled, at least compared to what and where it SHOULD be.

I mostly agree. Good graph! I do remember a period when a lot of people were freaking out that “the frackers were getting wiped out” by low prices — I suspect there’s a bit of a blip in that curve, just to the right of 2015 — but I argued that the “tech” would come through, and it did - remarkably so. Now, the fracker’s bet has really paid off.

OTOH, the “tech”, while not applicable everywhere, of course, is applicable to SOME places outside the US, and surely with time more such fields will be found, and the tech applied. So, it behooves us to keep every advantage, and to reduce / eliminate disadvantages, such as Obama-type over-regulation. That last “component” of the “shift” was what I was referring to as only being a year old.

Interestingly, while they are a “smaller” competitor when it comes to fracking, I wonder if the Euro’s can even follow with a moderation of regulations? Only if the Muslims take over there, perhaps, in a few decades?

Much of our inability to compete is the result of high taxes, onerous regulations, and unions pushing wages too high in certain industries. What you point out is true as well.

My only argument against tariffs is that they are net costs to the economy as a whole. There are protective tariffs which can be and should be used to protect critical industries.

There are revenue tariffs implemented to fund the government as in our beginning, there simply was little to no money left in the country after the Revolution. Today there is no way that a tariff can be used to fund the government without collapsing international trade and our economy. Our buddy does not recognize this and does not care.

Thank you for posting this and giving us the result of your experience. There are many areas which are similar: Domestic wines vs those from the RotW. California wines are excellent wines but they cost 33% more than the equivalent Italian wines of similar quality. French wines are also in that range though maybe a little higher than the Italian then there are Australian, Chilean, Argentinian which are very competative

Our automobile industries were stagnating and dependent on style changes each year which were unimportant to performance. Then the Japanese and Germans started exporting more to the US. Today I own a Hyundai which is the best car I ever had, the engine sounds like a watch. Prior to that I had a couple of Buicks: Park Avenue and LeSabre and I loved both but there was no comparison when I had to get a new car.

Foreign manufactures have a comparative advantage because they are not plagued by the Autoworkers Union and generally are located in states which are pro-business.

“I do remember a period when a lot of people were freaking out that “the frackers were getting wiped out” by low prices — I suspect there’s a bit of a blip in that curve, just to the right of 2015”

You are right, that is when “war” over the future of the oil market took place, and prices dipped into the $20’s. Great advances in productivity/technology, and innovative financing enabled the frackers to outlast the siege, and OPEC/Russia essentially conceded to the continued existence of American fracking - which means their own diminished future income and market power.

“reduce / eliminate disadvantages, such as Obama-type over-regulation. That last “component” of the “shift” was what I was referring to”

Oh, I did miss that. The de-regulation, and the opening of vast new leases off shore and in ANWR by Trump, are themselves a new revolution of sorts. They are the largest openings for leasing in American history, by a wide margin.

Such leases are for long term deals - decades long, with big capital investments up front. There is a strong rationale to hurry and lock in good long term deals now, while there is a favorable Administration in office - once in a generation favorable. The tax cut also strongly improves the investment calculus. So Trump is likely to set in motion significant long term investment in American production by big oil majors.

“I wonder if the Euro’s can even follow with a moderation of regulations?”

The big producers in Europe itself are the North Sea (Brent) producers of the UK and Norway (Netherlands/Denmark/Germany have a smaller piece as well). The Governments there, as in most of the rest of the world, play a much bigger role in the operation of oil and gas production (relative to the private sector), and definitely take big cuts of the revenue. As a practical matter, they will do whatever they can to improve their revenue, in terms of regulation. Their off shore fields are declining, and they have not found significant technology to reverse that. Bottom line: the things that are sending the Americans off to races, are not promising to have impact in the North Sea.

In addition to the North Sea though, European oil companies (like British Petroleum (BP) and (French) Total) have extensive operations around the world. In some of those places (like the French in their former African colonies), those European major oil companies can pretty much write their own regulations, so in some of those places, shale technologies will likely eventually have an impact.

There are huge shale oil deposits around the world. Large producers in Russia and in the Middle East have large deposits that have not yet been developed - but other countries with large deposits (like Argentina and China), have not been significant producers before. So as the technology eventually spreads, worldwide supply will likely increase. So far, it seems that the Russians have been most active in investing in the US companies, to learn the new shale technologies.

You Free Traitors™ can hide your head in the sand and pretend there is not an ongoing long term trade war that the USA is in now, a war the USA is losing badly. Denial isn’t a river in Egypt.

Your comments are great on this thread. Thanks for posting.

Wow, Cedar thanks. I thought nobody was following this war between me and the uber globalist.