Essay Sample on America's Economics Demand for Coal, Steel and Aluminum

Introduction

The trump administration recently moved to overwrite the Obama environmental laws on matters power-plant emissions. Through a long telegraphed order that is meant to help the coal-combustion plants to effectively compete with the natural gas companies and various cleaner sources as national energy sources. Andrew Wheeler, who is the Environmental Protection Agency administrator, signed the proposal that will oversee the scrapping off of the restrictions on power plants, which means giving a go-ahead to energy production through burning coal. The coal industry went on a slowdown following the availability of cheaper natural gas as an alternative, reducing the demand for coal as a primary means of energy production. This, coupled with the Obama restrictions on carbon emissions, saw the demand for coal surpassed by that of cheap and more efficient natural gas. However, the demand for coal is now destined for a comeback following the move by Trump to raise the restrictions previously imposed on coal production and burning. This move has had ripple effects with companies seeking mergers and purchase of coal producing and burning companies. Consequently, this pushes the demand for steel and aluminum, which has resulted in increased tariffs for the same.

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Scrapping off Obama's Restrictions on Coal Emissions

The economies of coal are on the transformative edge, especially for the low-sulphur cleaner coal. The prices of natural gas are in the increase, which is making coal more competitive. Coal still remains the largest fuel source for the power plants in the United States. In 2013, it accounted for approximately 40% of the amount of electricity generated countrywide. Natural gas followed, accounting for about 32% of the electricity produced. Nonetheless, a decade ago, coal was much more dominant, accounting for more than 50% of the power produced in the United States. The entry of natural gas, coupled with the Obama laws on greenhouse gas emissions, brought a significant change to the scene (Haggerty et al, 2018). Consequently, coal miners shut down more than 25% of the coal mines, greatly reducing the production. The stock prices of the companies plunged significantly. Peabody Energy, for instance, had its shares falling from 72 dollars to as low as 15 dollars, with many predicting a slow death to the coal industry. However, trumps recent move to lift the restrictions on the use of coal for power production has ignited local interest in coal production and consumption (Haggerty et al, 2018). The trump administration argues that reducing the pressure on the coal industry will double the coal fortunes in the near future, and slightly reduce the prices of electricity.

Mergers and Acquisitions

Following the ease in the regulations governing the local production and consumption of coal, the United States is now set to be the globe's most dynamic market for acquisitions and mergers, following the need to secure to supplies to satisfy an expected increase in demand. Although the focus in the mining of coal has been on Asia and Australia, the United States is likely to become the busiest markets for M&A, with the current mid-sized firms being involved as targets or bidders. The metallurgical coal, which is used in the production of steel, is on high demand, especially after the imposed tariffs on steel and aluminum, making local production of steel the cheaper alternative. Thermal coal has also attracted increased demand from Asian countries like China, despite the increased concerns about greenhouse gas emissions. China has become the greatest importer of thermal coal from the United States market, and this has resulted in an increase in the price of thermal coal exported to the Asian Market. Nonetheless, these prices have been subdued owing to the relatively small coal production in the United States (McDaniel & Parks, 2018). The recent change in laws by the trump administration has increased the likelihood of M&A deals in the U.S. coal industry to increase production and meet the current demand.

Steel and Aluminum Tariffs

The ripple effects of the increased production in the coal industry are likely to increase the demand for steel and aluminum, which are used in the manufacture of the mining and transportation equipment. The decision to increase the tariffs appears to be greatly fueled by the need to do something about the country's great trade deficits and the increased in the demand for coal, which will fuel an increased demand in aluminum and steel production. Trump proposes to impose 25% and 10% tariffs on steel and aluminum imports respectively. With this move, the trump administration aims at preserving the jobs in the aluminum and steel industries and help these industries grow. The president hopes that such tariffs will enable faster growth of the United States economy and lower the unemployment levels. Although trade deficits would lead to economic concerns theoretically, the best way to view the trade deficits is through a combination of microeconomic aspects which drive the investment and consumption decisions. If any economy uses more than what it produces, it is forced to import goods from other countries, which means that it would have to run a trade deficit.

The U.S. aluminum and steel production has been on an economic slowdown over the past two decades, owing to the increased competition from the Chinese market, which accounts for approximately 50% of the global steel production (McDaniel & Parks, 2018). The imposed tariffs may increase the profits and outputs of the steep and aluminum companies to an extent, but they are likely to attract retaliation from United States trade partners. This tariff appears to be targeted towards China. China is one of the greatest markets for the United States hydrocarbon exports. Consequently, in retaliation, Beijing is threatening to impose a 25% import duty on American energy goods. This move will negatively affect America's crude oil exports to China. Also, the coal miners in America may face a reversal of the 100% growth in the coal exports to the Asian nations, as it would only take minimum effort for the Chinese market to replace the American energy imports with those of other producing countries. The impact would be catastrophic for several producers in America.

Policy Recommendations

It is very likely that a trade war will ensue from the tariff retaliations between the U.S. and China. Ultimately, both countries may lose the trade war, which will create concerns for an economy that reduces business and consumer confidence, which means less investment and consumption in the economy. The businesses across the globe are linked up through supply chains, and disruptions on these chains as a result of trade barriers may consequently harm all businesses, including those in America. Trump needs to revise these tariffs, which have now undermined the role of America as a champion of free trade. Such tariffs will reduce the American influence in international engagement, which will create a void that countries like China would willingly step into. Therefore, to maintain the good faith of the American economy from a global perspective, it would be wise for the president to withdraw the tariffs imposed on aluminum and steel imports. Also, scrapping off the restrictions on coal production and consumption will result in an increase of smog and soot emissions, which according to EPA, will results in the deaths of approximately 1,400 Americans annually. EPA also warns that by 2030, it will have resulted in more 40000 asthma cases and more than 50000 lost school days. This new plan is likely to put the Americans wellbeing at risk, in addition to posing a threat to global warming and environmental pollution.

References

Haggerty, J. H., Haggerty, M. N., Roemer, K., & Rose, J. (2018). Planning for the local impacts of coal facility closure: Emerging strategies in the US West. Resources Policy, 57, 69-80.

McDaniel, C., & Parks, D. (2018). Steel and Aluminum Tariffs: Thousands of Exclusion Requests from US Firms.