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President Donald Trump greets supporters at Chennault International Airport on Tuesday, May 14, 2019, in Lake Charles, Louisiana.

The Trump administration is learning the hard way that threats of tariffs as a bargaining chip to negotiate better trade terms don’t always work. If Trump’s efforts are successful, lowering tariffs and removing trade frictions would be great news for the global economy.

Greg Upton

Greg Upton

But after more than a year of deliberations, the “trade war” continues to heat up. Economists are increasingly disappointed to see a world with more tariffs, not fewer. And, while the impacts of trade frictions on the national economy are at the forefront, the potentially differential impacts across industries, regions, and individual states must be considered.

The oil and gas industry, especially in the Gulf Coast region, is in the midst of a historic boom, with horizontal drilling and hydraulic fracturing from shale geological formations estimated to have created a combined 640,000 jobs in areas where these resources are being extracted. In addition, the subsequent expansion in chemical manufacturing and the export of natural gas in the form of liquefied natural gas (LNG) account for more than $162 billion in investments, with an additional $149 billion in project announcements planned in coming years, according to a Center for Energy Studies report.

Yet while Louisiana experiences these gains, the trade war is the veritable elephant in the room. Already, China has imposed retaliatory tariffs on U.S. natural gas. As a result, LNG shipments to China have slowed dramatically. President Donald Trump visited Louisiana last month but did not offer suggestions for how his administration would soften the blow that the Gulf Coast economy would be dealt from a resulting trade war.

The Federal Reserve Bank of Dallas has ranked Louisiana as one of the three most vulnerable states to a potential trade war. While results of the Fed study suggest that tariffs would slow economic growth for the U.S. economy, an all-out trade war scenario could reduce Louisiana’s GDP by an estimated 7 percent, or a reduction of more than $3,500 per person.

Louisiana has seen a decade of historic investment and today employs almost 40,000 people in the refining and chemical manufacturing sector; more employment than the up-stream oil and gas extraction side of the business. Louisiana is also home to three of the top 10 ports in the U.S. on total trade value, and energy and agricultural trade is a key industry in the state. But Louisiana has already seen a reduction of more than $5 billion in exports of agricultural products to China. Will energy products be next?

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Alarm bells have been surprisingly quiet, but the media has begun to pick up on these risks, noting that new LNG export projects will face headwinds of uncertainty about future buyers and financing. Because China is expected to be a pivotal buyer in global natural gas markets in the coming years, cutting off that market to U.S. natural gas could be a serious barrier to American developers.

Trump has urged FERC to speed up the approval of LNG export terminals and is now adapting rules that were previously focused on LNG for import, to large-scale liquefaction for export. While this has been viewed as positive for the industry, approvals are useless if trade war politics dissuade important trading partners from buying U.S. gas.

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While we hope these trade negotiations result in fewer tariffs and more trade, there is growing concern about what the Gulf Coast economy might suffer. And Louisiana might be most at risk. Midwestern farmers have already felt the negative consequences. Will the Gulf Coast oil and gas industry be the next victim? Will Louisiana’s historic construction boom end abruptly due to Trump’s trade war? And will a conservative southern state like Louisiana begin to realize these risks and push back politically? We will be watching closely to find out.

Greg Upton is assistant research professor at LSU's Center for Energy Studies. You can follow him on Twitter @gregbupton.