It was widely supported in Pennsylvania; 19 out of 20 members voted for it, including Sen. Bob Casey (D-Scranton), and U.S. Reps. Mike Doyle (D-Forest Hills), Conor Lamb (D-Mt. Lebanon), and Guy Reschenthaler (R-Peters). Sen. Pat Toomey (R-Lehigh) was the only member of the state’s delegation to oppose it, saying it would make free trade worse and raise costs to consumers.
The United States Mexico Canada Agreement (USMCA) requires Mexico, Canada, and the U.S. to increase the number of car parts made in those countries. Additionally, it stipulates how many automobile parts workers must be made more than $16 an hour by 2023 and increases labor protections for Mexican workers.
The trade deal is basically a renegotiation of NAFTA, the 25-year-old trade deal between Mexico, Canada, and the U.S. that many Pennsylvanian politicians have decried over the years. To many, this was a welcome change.
"Western Pennsylvanians know that NAFTA was a raw deal for our region, so I was proud to vote in favor of USMCA,” said U.S. Rep Mike Kelly (R-Butler) in a December statement.
But some of the deal’s stipulations might have some unintended consequences that could undermine the economic and labor goals of the Pittsburgh region, particularly related to the fracking, petrochemical, and plastics industries.
Chris Briem is an economist at the University of Pittsburgh’s Center for Social and Urban Research. He told City Paper that he’s not an economist specializing in the energy sector, but noted that the USMCA had some stipulations that could have a big impact on natural-gas prices.
As part of the trade deal, China is expected to dramatically increase how much Liquid Natural Gas (LNG) it purchases from the U.S. According to the business site Bloomberg, USMCA aims to increase the U.S. share of China’s gas imports to 21% by 2025. It was only 2% last year.
Pennsylvania is the second leading producer of LNG among U.S. states, with much of it coming from the Pittsburgh region.
Briem says that this increase would cause LNG prices to rise. While that's good for those producing the natural gas from fracking wells, Briem says it could put Pittsburgh’s plan of becoming a plastics hub in jeopardy.
With the creation of a petrochemical plant, aka a cracker plant, in Beaver County, regional leaders have envisioned a resurgence in manufacturing through the plastics. Cracker plants refine natural gas into plastic pellets. Those pellets, some hope, will lead to the creation of scores of manufacturing companies, creating everything from light-weight car parts to materials for homes.
So.... natural gas liquids big on that chart. Where are those produced? Or where will they be produced. ? https://t.co/vJ15e9A4Du— chris briem (@chrisbriem) January 16, 2020
“If we start to export a lot of natural gas, it will push up demand, which will push up prices,” says Briem.
As the prices for LNG increase, cracker plants will likely raise the price of their plastic pellets, which will put the squeeze on the new plastic manufacturing companies. Briem says that could put at risk this hope of catalyzing new manufacturing in Pittsburgh and the U.S., not to mention the increased natural gas utility cost transferred to consumers.
Briem says that frackers and companies like Shell, which is building the Beaver County cracker plant, will benefit enormously, but the increase in LNG exports won’t help potential plastic manufacturers, which leaders like Allegheny County Executive Rich Fitzgerald (D-Squirrel Hill) and Gov. Tom Wolf (D-York) are hopeful will provide thousands of high-paying, permanent jobs.
Since 2009, the Pittsburgh region has lost more than 10,000 manufacturing jobs and is now at the lowest level of manufacturing employment in the region’s history.
“If there is this separate hope of building the plastics industry in Pittsburgh, then you want the plastic prices to be low,” says Briem. “Arguably, if you can keep natural gas prices low, then there are benefits.”
Pittsburgh politicians are split over support for the region’s fracking and petrochemical industry. Pittsburgh Mayor Bill Peduto and others have called on a moratorium on new cracker plants and roll back on natural-gas drilling, citing the pollution costs that will make the region unattractive to other companies, while Fitzgerald and others say crackers and frackers are necessary to maintain and increase jobs in rural and exurban communities.
Of course, that’s only if cracker plants lead to a new manufacturing industry. While construction of the Beaver County cracker plant has created about 6,000 construction jobs, the plant will only employ about 600 people on a permanent basis once building is complete.
Also, this high LNG scenario is predicated on the USMCA actually being successful at exporting natural gas. And indications from some experts believe the exporting goals of the trade deal are unreachable.
Chad Brown of the Peterson Institute for International Economics wrote this week that, despite Trump's pledges about the potential success of increasing exports, “many experts were, of course, quick to note that China’s promised purchases are bound to fall short. In fact, a close look at the data … shows that the numbers are even more unrealistic than first believed.”
Briem mentions the Trump administration’s new rule that would allow for LNG to be transported by train and questions the ability for LNG companies to accomplish this, as well as the dangers of transporting such explosive and volatile material.
1 / 10— Chad P. Bown (@ChadBown) January 21, 2020
Trump's heralded trade deal with China rests on a $200 bn assumption:
China will increase purchases of US exports by $200 bn over 2020-21.
But a look at
The agreement's LEGAL text
= this is highly UNLIKELY.
And while the USMCA failing to meet its export goals likely means continued low prices for LNG in Pittsburgh, and potentially a better chance at a plastics hub, it also undercuts the Pennsylvania support for the landmark trade deal in the first place.