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Under NAFTA, let's do more trade, not less

Excerpt

The following by SMU's Bernard L. Weinstein first appeared in the July 6, 2017, edition of The Houston Chronicle. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University.

Bernard Weinstein
Bernard L. Weinstein

July 6, 2017

By Bernard L. Weinstein

Last month, the week of June 25 was designated "Energy Week" by President Donald Trump. In speeches and press releases, the president, along with the Secretary of Energy and other administration officials, chanted a new mantra: "Energy Dominance," as opposed to energy security or energy independence.

The parameters of the strategy would appear to be (1) increasing U.S. exports of fossil fuels; (2) relying more on imports of oil and gas from friendly countries in politically stable regions; and (3) leveraging our energy abundance to enhance our policy influence in the global arena.

We've already seen President Trump play the energy card by pressing Prime Minister Narendra Modi of India, during a recent White House visit, to lower that country's import tariffs in exchange for more liquefied natural gas shipped from the United States. The Trump Administration has also committed to expediting the approval and construction of more LNG and coal export facilities around the country.

These initiatives are all well and good. But the pursuit of "Energy Dominance" can be better-served by focusing on all of North America, not just the U.S. This means the president must tread carefully on his pledge to revamp the North American Free Trade Agreement, a pact he has referred to in the past as "the worst trade deal ever." As the nation's No. 1 energy producer, Texas has more at stake in the NAFTA debate than any other state.

As is well-known, the shale revolution in the U.S. has boosted oil and gas production to record levels. In Canada, meanwhile, oil production has jumped more than 50 percent over the past decade with the increase coming principally from the oil sands in Alberta, which are estimated to hold the third-largest reserves in the world.

Oil and gas production in Mexico has been declining for many years, but the historic legislation passed in 2013 that ended 75 years of state monopoly is already attracting new investments from the U.S., Canada and other countries that should soon reverse this downward trend.

The energy markets in North America are already somewhat integrated. For example, Mexico today generates more than 25 percent of its electricity with U.S.-supplied natural gas. With more gas pipelines under construction, U.S. exports to Mexico are expected to double by 2019. Significant amounts of crude oil from Alberta are shipped to U.S. refineries by rail and pipelines. And last year, the U.S. imported 70 million megawatt hours of hydro-generated electricity from Canada.

NAFTA also has led to transnational supply chains, enabling companies to keep costs low by manufacturing and assembling products across the continent. Natural gas from the U.S. helps keep Mexico's power costs lower than China's, its chief manufacturing rival.

Abundant energy allows for goods to be transported cheaply across extended supply chains while lowering factory overhead costs.

North America possesses five times more fossil fuel reserves than OPEC, providing the potential for our continent to become a global energy colossus.

Linking the energy sectors of the three NAFTA partners will reap rewards across the continent and hasten the overall economic integration of North America itself.

More cross-border trade and investment can lead to greater economic efficiencies, new job opportunities in energy and other industries in all three countries, and higher incomes for workers across North America. Cheap and abundant energy, in turn, can fuel an industrial revival that will make North America the world's leading manufacturing and exporting region.

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