The Wall Street Journal recently published an article that demonstrates how disputes about individual interests often impede us from doing what is best for the country.
According to the article, manufacturers are pressing the government to restrict potential exports of natural gas in order to keep prices low in the United States. This is a blatant attempt to put their interests ahead of the nation’s. The arguments make no sense from an economic point of view and would damage the economy. This matters because exports will require the construction of large facilities to make liquefied natural gas. If the administration uses these arguments to deny the permits needed to construct the facilities, there will be fewer exports. Manufacturers may benefit from lower prices but these gains will be offset by losses to producers and to the customers of manufacturers. Economic theory tells us that the nation will be worse off as a whole.
You might think that in the face of large persistent trade deficits, any exports — especially energy exports — would be welcome. And with unemployment remaining stubbornly high the opportunity to construct billions of dollars of new infrastructure would be an important source of new construction jobs. But apparently these gains might be thrown away to create a hidden subsidy for manufacturers.
The argument from manufacturers is that exports would raise the price of natural gas in the United States. This would make domestic industries that use gas either as fuel or an industrial input less competitive internationally than they would otherwise be. This is true, but it applies equally to all exports, not just natural gas. To some extent exports of any product reduce domestic supply and therefore raise the cost to domestic users, whether they are other companies or final consumers. Does this harm the economy? No, because the losses to consumer are offset by the gains to exporters and consumers. Moreover, there is a general national interest in promoting economic efficiency. Over the long run, the country is better off if all industries are forced to compete on a level playing field against international competitors. Subsidizing companies by keeping their inputs artificially cheap quickly leads to dependency. International competition benefits customers, whether they are consumers or other companies.
The United States has a strong interest in maintaining a reputation as a reliable exporter. We strongly object when other countries restrict the export of raw materials in order to try to gain a competitive advantage. A good example is China’s recent efforts to limit exports of rare earth metals. We especially object in the case of energy exports. Because the United States is a large exporter of other basic commodities such as grain, it has a strong interest in building a reputation as a reliable supplier even or especially when prices are high. If foreign countries are not assured that we will allow their customers to compete against domestic customers they will try to protect themselves by buying from other countries or subsidizing domestic producers. This is one of the arguments Japan makes to justify its subsidies to Japanese rice producers and barriers to imports of American rice.
The manufacturers argue that raw materials are different. For instance, a Dow Chemical spokeswoman is quoted as saying: “When natural gas is used as a chemical raw material, it creates eight times the value compared to other uses, and fuels higher-paying jobs, exports of finished goods and the vitaliaty of the manufacturing sector.” It is easy to see why Dow, which uses natural gas as input to many of its products, would like to see its cost of business kept low. But then why don’t we limit wheat and corn exports so that food processors can become more competitive? For that matter, since a lot of Dow’s products serve as inputs for other manufacturers, why should we let Dow export or raise the price it charges to its customers? Doing so only makes these customers less competitive.
The cynicism in these arguments can be seen by reflecting on the fact that a short time ago people expected the United States would have to import gas rather than export it. If the nations supplying us with gas had restricted those exports in order to help their companies, or if the government had denied the permits to build the necessary infrastructure, you can bet Dow would have objected.
The problem with economic progress in a modern economy is that it almost always hurts an existing interest. If that interest is allowed to stop advancements, wages and living standards will be much lower and all American businesses will gradually become less competitive. The Administration should see these arguments for what they are: a cynical attempt to put narrow interests ahead of the national welfare.
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