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Reduce the Trade Deficit by Ending the Crude Oil Export Ban

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October 26, 2015 | 2,523 views | Post a comment

By Merrill Matthews

What appears to be a global economic slowdown, led by China's stumbling economy, will almost certainly impact one particular area of the U.S. economy: the balance of trade deficit.

U.S. companies sell goods and services to other countries, and those countries sell their goods and services to us. The U.S. always buys more than it sells -- mainly because we have more money to spend -- which leads to a monthly trade deficit.

But when the U.S. economy goes into a tailspin, we buy fewer foreign goods and services, and so the trade deficit decreases. When the U.S. economy is strong, the trade deficit usually increases.

Some economists and politicians worry when the trade deficit grows and look for ways to lower it.

There's one sure way to dramatically lower the balance of trade deficit: remove the ban on U.S. crude oil exports.

In 1975, when gas lines were long and voters' tempers were high, Congress prohibited U.S. crude oil exports. The country was on a gradual crude oil production decline, and Congress wanted the country to keep every drop it produced.

Of course, cars run on gasoline and not crude oil, but there is no ban on refined gasoline products. So, Congress banned the export of a product drivers can't use but not a product they can.

But that was 40 years ago, and innovative drilling techniques have flipped the gas shortage around. The U.S. Energy Information Administration now ranks the U.S. as the largest producer of crude oil in the world.

Allowing crude oil exports would increase oil supplies, stabilize oil prices, and reduce the trade deficit.

Critics claim we shouldn't end the ban because the U.S. still consumes more oil than it produces. But they're missing two points.

First, the U.S. could become a net oil producer within five years. But establishing the infrastructure and entering into contracts takes time, and no oil producing company is going to move forward without knowing for sure that Washington will allow exports.

Second is economic efficiency. Oil has to be refined to be used, and getting crude oil to a refinery that can handle it means transportation and sometimes storage costs. It makes more economic sense for a company to sell its crude oil to another country than pay additional costs transporting and refining it in the U.S.

The White House opposes ending the ban, and has suggested that the Commerce Department, not Congress, should decide whether to lift it. But they're just stalling, similar to the Keystone XL pipeline.

In that case, the White House asked the State Department to assess the environmental impact of approving the Keystone, knowing the assessment would take years. But State Department experts concluded that approving the Keystone would have little environmental impact. Even so the White House has refused to approve the pipeline.

Economists disagree on the importance of reducing the trade deficit, but there should be agreement that allowing oil exports would be the best way to do it. Congress should end the export ban even if the White House disapproves. Don't let crude oil exports get sidelined by the same tactic that hindered Keystone approval.

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow at
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