Trump’s Desperate Diesel Plan Will Backfire

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0:54Hello, and welcome to the weekend edition of The David Fromm Show. I'm David Frum, a staff writer at The Atlantic. President Trump's political chances, his party's political chances, are under extreme pressure because of high fuel prices and especially high diesel prices. Diesel prices, of course, bear on farm prices, trucking prices. They ramify through the whole economy. And the Trump administration is now desperately, frantically looking for some gimmick, something that will buy them some relief just to get them through the midterm elections. The idea they're reportedly working on is a ban on diesel exports.

1:28This is just the ticket, they think, to bring down diesel prices, at least temporarily, at least enough to buy them, a little relief before the November vote. Now, the idea won't work, and I will shortly explain why it won't work. But I think it says something kind of disturbing to understand what I'm about to tell you is something that everybody in the administration already knows or should know. why would they succumb to a gimmick as obviously dumb as this? What does it say about them that they are so ready to be fooled by such a bad idea? But first, let's talk about why it won't work. The United States is a significant producer of diesel fuel.

2:04It produces much more than it consumes domestically. And that extra volume of diesel production is exported by ship to the rest of the world. The Trump people think, well, if you could just simply stop, cut off those exports, keep all of that extra supply of diesel here in the United States, it would put downward pressure on prices and buy them some relief. So what's wrong with that idea? Well, first, the diesel fuel has to move. Diesel moves in two ways, either by pipeline or by ship. The pipeline network does not cover all of the United States. Obviously, it doesn't cover Hawaii and Alaska. It doesn't cover California.

2:38And it only goes partway up the eastern seaboard of the United States. The diesel is refined mostly on the Gulf Coast of the United States, and then it's moved to other areas that are adjacent by pipeline. but the pipelines are at capacity. So even if more diesel fuel is kept inside the United States, since the pipeline network is fully committed, you're not going to get more fuel delivered by pipeline anywhere else. So the pipeline has to move by ship. But there are already big bottlenecks and supply chain impediments to moving the diesel by ship. And the parts of the country that are used to getting their diesel by ship get it not from the United States.

3:12New England, for example, gets much of its diesel fuel by ship from Canada, part of the trade relations that President Trump has been trying to sever. What will happen most likely if the people on the Gulf Coast, whose pipeline networks are fully committed, find themselves with more diesel fuel than they can sell inside the United States, is that they will simply reduce diesel refining. They will produce less diesel because they're not able to sell it. Because you either sell it or store it. They can't sell it because the pipeline network is full. They don't want to store it because that costs money.

3:39So they'll reduce the output. And that will mean running all of the refineries less busily and pushing up the price of every kind of fuel, gasoline, jet fuel, everything. Everybody should know this. And everybody, I think, who spends, as I did, I didn't know any of this stuff four days ago, who spends an hour researching it, reading about it, will quickly discover the limits. Also, we'll discover the havoc that a U.S. diesel export ban would play on world markets because diesel costs more everywhere. Now, one-fifth of all the diesel oil that moves by ocean anywhere in the world comes from the United States.

4:14The United States is a huge exporter of diesel fuel into the international market. If the United States stops exporting, prices go up everywhere, all over the planet, and especially in the places where the United States sells most of its diesel oil. Latin America is one large market. Europe is another large market. So worldwide diesel prices will go up. And because oil is arbitrage, that will have an effect on prices in the United States. Americans will be producing less because they can't move their diesel. The pipelines are full. The shipboard is at capacity. They can't sell it. They don't want to store it.

4:46And so you'll make the worldwide diesel crisis that much worse. And all of this will show up quite soon, although maybe after the November elections. If you're trying to get news today, you'll find a lot of biased algorithms, rage bait, and AI noise. Thanks, social media. That's where Impress comes in. It's a social platform on top of factual journalism, not the other way around. Track your reading and earn points. It's like Strava for your brain. Plus, you can connect with other users in your city who share your genuine curiosity. Ditch the echo chamber for reality with Impress. Download it today for iOS or Android at Impress.app.

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5:59So why are they going through this exercise? They have to know this stuff. And if they didn't know it, as I said, it took me about an hour and a half, maybe an hour to learn it all. The fundamental problem is the Trump people refuse to think about the American economy as being part of the global economy. They refuse to believe that what happens in other places affects the United States. What happens in the United States affects other places. They have a model where the United States is sealed off and they regard America's foreign trading partners as adversaries. So if the United States stops exporting diesel fuel and markets erupt into havoc, the United States is still hoping to draw diesel fuel from Canada for New England and other similar places.

6:40What happens if everybody plays by these rules and says, okay, the way we'll lower our diesel prices is by keeping our diesel at home. The Canadians will do it. Other people have diesel to sell. They'll do it. You bust up the whole international finely integrated supply chain and New England will be a place that suffers. The core problem is that Trump and the people around him simply cannot understand the complex networks of cooperation, integration, supply that power a global economy. And they don't like it. To the extent they understand it, they don't like it. And they don't like it because it interferes with their vision of the United States imposing its will on the rest of the planet rather than working in peace and freedom in a capitalist market global economy.

7:24So they contemplate taking a hatchet to the whole thing, busting it up, and seeing what happens. Now, in the end, none of this may happen. There's one other problem, which I should have mentioned at the very start, which is it's not clear that the president has the legal authority to do any of this. One of the things we're used to in the Trump era is the president deciding, if I want to do something, I must be able to do it, and why can't I have the power to order private refineries that are producing their own oil and putting it on barges? Where does the power come from to tell them not to do it?

7:56Now, maybe a lawyer will find that power, but it's not obvious where it would come from. And it's really striking that the Trump people don't care and just take it for granted that anything the president wants to do or takes it into his full head that he'd like to try, anything like that, regardless of the Constitution, regardless of the law, it is his imperial will that must prevail. So this gimmick, which is maybe being discussed just simply as a way of buying some relief from the news cycle. At least we're talking about something that Trump might do rather than talking about all the bad things he has done, talking about a thing that people might be deceived into believing would help them.

8:31It is an example of just how unfit they are for the jobs they hold and the responsibilities they hold and how far the discussion inside the Republican Party has moved away from a grounding in market economics. You'd expect anyone to think this, but you'd especially expect a Republican administration to think it. When someone comes up with an idea like, Let's ban the export of diesel fuel. I don't know. I don't know a lot about diesel right now. I'll learn. I don't know a lot about diesel right now. I do know a lot about markets. I do know that markets shouldn't be interfered with, and it's probably going to backfire if you do interfere with them.

9:04And if I didn't know that, why am I a Republican in the first place? We've got Republicans who don't believe in markets. And if a Republican doesn't believe in markets, well, what's the point of them anyway? That's it for this weekend edition of the David Fromm Show. Thanks so much for listening, and watching. See you in the middle of next week on the Wednesday edition of The David Fromm Show. I hope you will consider sharing this program with anyone who you think might be interested, and I hope you will consider subscribing to The Atlantic as well. See you next week. Bye-bye.

9:49If you're trying to get news today, you'll find a lot of biased algorithms, rage bait, and AI noise. Thanks, social media. That's where Impress comes in. It's a social platform on top of factual journalism, not the other way around. Track your reading and earn points. It's like Strava for your brain. Plus, you can connect with other users in your city who share your genuine curiosity. Ditch the echo chamber for reality with Impress. Download it today for iOS or Android at Impress.app. That's I, N as in news nerd, press.