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Trade War Clouds Outlook as Finance Chiefs Meet in Japan

Finance ministers and central bank governors meeting in Japan this weekend will try to make headway on long-standing issues such as how much global giants like Facebook and Amazon should pay in taxes. 

 

They’re likely to end up focusing a large share of their attention on how to keep global growth on track when the world’s two biggest economies are entrenched in an escalating trade war. 

 

U.S. Treasury Secretary Steven Mnuchin, who has headed trade talks with Beijing along with U.S. Trade Representative Robert Lighthizer, was due to meet with Yi Gang, governor of China’s central bank, on the sidelines of the G-20’s annual financial gathering in Fukuoka in southern Japan. 

 

But it was unclear if their meeting, a possible prelude to talks at the G-20 summit later this month between President Donald Trump and Chinese President Xi Jinping, might lead to a restart of those talks after weeks of stalemate. 

China’s ability to endure

 

As the Trump administration prepares to expand retaliatory tariff hikes of up to 25% to another $300 billion of Chinese products, Beijing has sought to highlight China’s capacity to endure and overcome hardship.  

 

Yi told Bloomberg Television in an interview broadcast Friday that he expected the meeting with Mnuchin to be “difficult.” But he said China’s central bank, the People’s Bank of China, had plenty of room to maneuver to help keep the economy growing despite the pounding the country’s export manufacturers are taking as the toll from higher tariffs mounts. 

 

Speaking Thursday in France, Trump said he plans to make a decision about ramping up tariffs on China after speaking with Xi at the summit in Osaka at the month’s end.

“I will make that decision, I would say, over the next two weeks — probably right after the G-20,” he said.

The Trump administration began slapping tariffs on imports of Chinese goods nearly a year ago, accusing China of resorting to predatory tactics to give Chinese companies an edge in advanced technologies such as artificial intelligence, robotics and electric vehicles. These tactics, the U.S. contends, include hacking into U.S. companies’ computers to steal trade secrets, forcing foreign companies to hand over sensitive technology in exchange for access to the Chinese market and unfairly subsidizing Chinese tech firms.

Trade deficit

Trump has also complained repeatedly about America’s huge trade deficit with China — a record $379 billion last year — which he blames on weak and naive negotiating by previous U.S. administrations.

The United States now is imposing 25% taxes on $250 billion in Chinese goods. Beijing has counterpunched by targeting $110 billion worth of American products, focusing on farm goods such as soybeans in a deliberate effort to inflict pain on Trump supporters in the U.S. heartland.

Unease over trade tensions and their potential impact on other economies has deepened since Trump announced he would impose a 5% tax on Mexican products starting Monday — a tax that would reach 25% by Oct. 1 if the Mexican government fails to stop the flow of Central American migrants into the United States.

While the tariffs have taken a minor toll on the U.S. economy, the uncertainty and slowing demand are rippling across the globe. Earlier this week, the World Bank downgraded its forecast for the global economy in light of trade conflicts, financial strains and unexpectedly sharp slowdowns in wealthier countries.

Slashing rates

The weakness has prompted central banks, most recently in Australia and India, to slash interest rates to fend off recession. 

 

Japan, hosting the G-20 for the first time since it was founded in 1999, has plumbed the limits of that strategy. The Bank of Japan’s policy interest rate has been at minus 0.1% for years, to keep credit cheap and support a modest pace of expansion.

As the trade conflicts percolate, the officials gathering in Fukuoka, a bustling port city on the southern main island of Kyushu, will carry on chipping away at financial reforms and other perennial issues. 

 

Some European members of the G-20, especially, want to see minimum corporate tax rates for big multinationals. 

 

Japan’s Kyodo News service reported Friday, citing a draft communique, that the finance leaders are also discussing the issue of how developing countries are handling debts incurred through major construction projects, efforts to combat money laundering, and efforts to prevent terrorist groups from using cybercurrencies as a source of funding.

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Research: Russian Disinformation on YouTube Draws Ads, Lacks Warnings

Fourteen Russia-backed YouTube channels spreading disinformation have been generating billions of views and millions of dollars in advertising revenue, according to researchers, and had not been labeled as state-sponsored, contrary to the world’s most popular streaming service’s policy.

The channels, including news outlets NTV and Russia-24, carried false reports ranging from a U.S. politician covering up a human organ harvesting ring to the economic collapse of Scandinavian countries. Despite such content, viewers have flocked to the channels and U.S. and European companies have bought ads that run alongside them.

The previously unpublished research by Omelas, a Washington-based firm that tracks online extremism for defense contractors, provides the most comprehensive view yet of the Russian government’s success in attracting viewers and generating revenue from propaganda on YouTube, which has 2 billion monthly viewers worldwide.

YouTube, owned by Alphabet Inc’s Google, introduced a policy in February of 2018 to identify channels predominantly carrying news items and are wholly or partly funded by national governments, in order to help users make informed viewing decisions.

YouTube said on Wednesday that following inquiries from Reuters it added the state-funding disclaimer to 13 additional Russian channels, including eight of the channels spreading disinformation.

Twelve other Russia-sponsored channels identified by Omelas with misleading or inaccurate news reports already had the state-funding label.

Collectively, the 26 channels drew 9 billion views from January 2017 through December 2018, Omelas found. Another 24 Russian channels with no apparent ties to disinformation attracted an additional 4 billion views, Omelas said.

Omelas estimated those 13 billion total views could have generated up to $58 million from ads, including some from Western advertisers. It estimated that Russia could have received $7 million to $32 million under YouTube’s standard revenue-sharing program, while YouTube itself would have pocketed from $6 million to $26 million.

An accurate analysis is difficult because YouTube shares limited audience and sales data. YouTube declined comment on the channels’ revenue. Calls and emails to the Russian government and the country’s embassies in the United States and Britain were not returned.

It is not uncommon for state broadcasters around the world to put videos on YouTube. Russia’s channels, though, have faced more scrutiny since the United States concluded that Russian operatives attempted to disrupt the 2016 presidential election by posting fake news to social media from fabricated personas and news organizations. Russia has denied any wrongdoing.

“YouTube continues to enable the monetization of state propaganda, fringe conspiracies and intentional outrage,” said Ryan Fox, chief operating officer of cybersecurity firm New Knowledge.

Money-maker for Google

YouTube said it welcomes governments in its revenue-sharing program and does not bar disinformation.

“We don’t treat state-funded media channels differently than other channels when it comes to monetization, as long as they comply with all of our other policies,” YouTube spokeswoman Alex Krasov told Reuters. “And we give users context for news-related content, including by labeling government-funded news sources.” 

The Russian-sponsored YouTube channels come from government ministries and state media networks, some dating back 13 years, according to Omelas, which based its research on a public database from the European Union of online disinformation sources.

The channels listed by Omelas, of which NTV was the most viewed, contain nearly 770,000 videos, including singing competitions, talk shows and news clips, some more clearly biased or inaccurate than others. A few of the channels are in English, French or other languages but most are in Russian. YouTube mostly generates its revenue from selling ads placed adjacent to, before or during videos on its service.

Some Western advertisers, which were unaware their ads were appearing on Russian channels, told Reuters they were concerned about being associated with questionable content.

Grammarly, an online grammar-checking service whose ads appeared on Russian channels with deliberately misleading news, told Reuters it would never knowingly associate with misinformation.

“We have stringent exclusion filters in place with YouTube that we believed would exclude such channels, and we’ve asked YouTube to ensure this does not happen again,” spokesperson Senka Hadzimuratovic said in a statement.

Other ads reaching viewers on Russian-funded conspiracy videos came from insurer Liberty Mutual, the European Central Bank and software firms Adobe Inc, Yandex NV and Wix.com Ltd, according to research by Omelas and Reuters.

The ECB, Adobe and Yandex declined to comment. Liberty Mutual and Wix did not respond to requests for comment. John Montgomery, a global executive vice president at ad buying company GroupM, said advertisers can set filters to automatically avoid supporting some objectionable channels but they are imperfect.

“Disinformation is probably the biggest challenge we’ve got on the internet today,” he said.

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Facebook Stops Huawei From Pre-Installing Its Apps on Phones

Facebook has stopped letting its apps come pre-installed on smartphones sold by Huawei in order to comply with U.S. restrictions, dealing a fresh blow to the Chinese tech giant.

The social network said Friday that it has suspended providing software for Huawei to put on its devices while it reviews recently introduced U.S. sanctions.

Owners of existing Huawei smartphones that already have Facebook apps can continue using them and downloading updates.

It’s not clear if buyers of new Huawei devices will be able to install Facebook’s apps on their own.

Facebook’s move is the latest fallout in the escalating U.S.-China tech feud.

The Commerce Department last month effectively barred U.S. companies from selling their technology to Huawei and other Chinese firms without government approval.

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Fiat Chrysler Drops Renault Merger Idea

Italian-U.S. carmaker Fiat Chrysler on Thursday pulled the plug on its proposed merger with Renault, saying negotiations had become “unreasonable” because of  political resistance in Paris.  

 

Fiat Chrysler Automobiles, or FCA, had stunned the markets last week with a proposed “merger of equals” with the French group that would — together with Renault’s Japanese partners, Nissan and Mitsubishi Motors — create an auto giant spanning the globe.  

 

The French government, which controls 15 percent of Renault, gave the deal a conditional green light, with analysts suggesting it wanted more control over the combined group alongside Fiat’s Agnelli family. 

 

FCA said late Wednesday that it “remains firmly convinced of the compelling, transformational rationale” of the tie-up, which it said was “carefully balanced to deliver substantial benefits to all parties.”

 

“However it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” it said in a statement.  

 

On Thursday, FCA chief John Elkann stood by the decision to start, and then leave, the merger talks. 

 

“When it becomes clear that the conversations have been brought to the point beyond which it becomes unreasonable to go, it is necessary to be equally brave to interrupt them,” Elkann wrote in a letter to employees published by Italian media.  

Renault expressed its “disappointment” at the turnabout. 

 

“We view the [Fiat] opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European-based global auto powerhouse,” it said in a statement. 

 

The combined group, including Nissan and Mitsubishi, would have been by far the world’s biggest, with total sales of 15 million vehicles, compared with both Volkswagen and Toyota, which sell around 10.6 million apiece. 

 

Shares in Renault plunged by more than 6 percent on the Paris stock exchange. In Milan, FCA shares also initially slid but then recovered to close up 0.1 percent.

Nissan holds key

Despite the verbal sparring that erupted after FCA’s announcement, industry experts did not rule out talks being resumed.  

 

“The collapse of the proposed Fiat Chrysler/Renault merger leaves both firms exposed to the shifting dynamics of a sector at a crossroads,” Ilana Elbim, credit analyst for Hermes Investment Management, said in a note.  

 

Pointing to falling sales volumes in major auto markets, she said “mega-mergers designed to save on capital expenditures remain inevitable.” 

 

On Tuesday, Renault’s board had said it was studying FCA’s offer “with interest,” but held off final approval pending further deliberations.  

 

By Wednesday, all Renault directors had come around in favor of the merger, with the exception of the employee representative affiliated with the powerful CGT union and two from Nissan who abstained, according to a source close to Renault.   

The two Nissan directors were said to have asked for more time to approve the deal. There was no official comment from Nissan headquarters in Tokyo. 

 

Relations between Renault and Nissan have come under strain since the arrest in November of their joint boss, Carlos Ghosn, who awaits trial in Japan on charges of financial misconduct. 

 

French Finance Minister Bruno Le Maire had laid down conditions for the tie-up with FCA, insisting there be no plant closures and that the Renault-Nissan alliance be preserved.  

 

The Renault source said Le Maire had asked for another board meeting next Tuesday following his return from a trip to Japan, where he was to discuss the proposal with his Japanese counterpart at a meeting of G-20 finance ministers.  

Blame game

A source close to FCA said it was the “sudden and incomprehensible” objections by Le Maire’s ministry that had caused the deal to collapse. 

 

Italian Deputy Prime Minister Luigi Di Maio said: “When politics tries to intervene in economic procedures, they don’t always behave correctly, I don’t want to say any more.”   

But Le Maire stressed that, of his conditions, only the explicit approval of Nissan remained to be secured, while aides denied that the ministry had played politics with the deal. 

 

A source close to the finance ministry said the French government “regrets the hasty decision of FCA.” 

 

“Despite significant progress, a short delay was still necessary so that all conditions set by the state could be met,” it said. 

 

Le Maire indicated the French government was amenable to changes at Renault despite FCA’s U-turn. 

 

“We remain open to the prospect of industrial consolidation, but once again, in calmness, without haste, to guarantee the industrial interests of Renault and the industrial interests of the French nation,” he told the French parliament. 

 

For his part, Elkann said FCA “will continue to be open to opportunities of all kinds that offer the possibility of strengthening and accelerating the realization of this strategy and creating value.” 

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Google Cloud Gaming Service to Launch in 14 Countries This Year

Google on Thursday released new details about its video game streaming service Stadia, which will be available in 14 countries starting in November.

For the launch, Google will sell its “founders edition bundle” hardware pack for $129, with a monthly subscription price of $9.99. In Europe, the price will be 129 euros and 9.99 euros per month.

The new gaming platform aims for a Netflix-style subscription that enables players to access games on any device, powered by the internet cloud.

This could disrupt the huge gaming industry by allowing users to avoid consoles and game software on disc or download.

Subscribers will have access to free games and will be able to purchase some blockbuster titles as well.

The first free title will be the shooter game Destiny 2 from game developer Bungie.

Users may also purchase hit titles such as Assassin’s Creed Odyssey and Ghost Recon Breakpoint.

Stadia will launch in the United States, Britain, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Spain and Sweden.

Announcing the game platform earlier this year, Google chief executive Sundar Pichai said the initiative is “to build a game platform for everyone.”

Google’s hope is that Stadia could become for games what Netflix or Spotify are to television or music, by making console-quality play widely available.

Yet it remains unclear how much Google can grab of the nascent, but potentially massive, industry.

As it produces its own games, Google will also be courting other studios to move to its cloud-based model.

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IMF: US Trade Wars Are Risk to America’s Economy

The U.S. economy could be weakened by escalating trade wars or a sudden downturn in global financial markets, the International Monetary Fund (IMF) warns.

In an annual review of the U.S. economy, the IMF said it was on a 2.6 percent growth track this year, greater than the 2.3 percent growth rate forecast in April.

But the report also said the U.S. economy appears to be increasingly vulnerable amid investor concern over America’s trade wars, noting they could trigger worsening global financial conditions.

The IMF criticized U.S. President Donald Trump’s administration for efforts to remake global trade relationships through higher tariffs and said it was “especially important” to resolve the trade dispute with China.

The report said the U.S. economy has recovered from the financial crisis that began in 2008, but millions of Americans did not benefit from the recovery. Household income increased a meager 2.2 percent from the end of the last century, the report said, while the U.S. economy expanded 23 percent per capita during the same period.

“The poorest 40 percent of households have a level of net wealth that is lower today than it was in 1983,” the report said.

The report called on the Trump administration to avert an economic slowdown by adopting measures to cut public and corporate debt and address inequality.

On Wednesday, the IMF warned the U.S.-China trade war could cut world economic growth next year.

IMF Managing Director Christine Lagarde said Trump’s threat to tax all trade between the two countries would shrink the global Gross Domestic Product (GDP) by one-half-of-one percent.

“This amounts to a loss of about about $455 billion, larger than the size of South Africa’s economy,” Lagarde said in a briefing note for the Group of Twenty (G-20), a collection of the world’s largest advanced and emerging economies. “These are self-inflicted wounds that must be avoided… by removing the recently implemented trade barriers and by avoiding further barriers in whatever form,” she added.

The warning came as G-20 finance ministers and central bankers prepare to meet in Japan later this month. They will gather just weeks after U.S.-China talks collapsed amid claims of broken promises and another round of punishing tariffs.

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Vietnam Businesses Push for Green Economy

Liz Hung supports a lot of the imaginative concepts being discussed to make Vietnam “greener” economically and in terms of urban planning.

 

Consider traffic lights. Hung described how government authorities could collect smartphone data to see which streets are crowded, and then calibrate the stoplights to optimize traffic flow.

 

Hung and others in the private sector are giving Vietnamese officials their wish list for a green economy, from more renewable energy to buildings that collect rain water for use.

 

“Road congestion costs us at least 2 to 5% of our [gross domestic product] growth every year because of the time we lost or the high transportation cost, so that is why being smart [in] mobility is very crucial,” said Hung, who is CBRE associate director of Asia Pacific Research.

 

Hung’s comment highlights the link between good city planning and economic benefits.

Emulating China, Australia

 

There is also a larger debate about whether the economic benefits outweigh the costs of going green.

 

There is a financial cost of technology to make Vietnam more efficient. But there also is a security cost, as “smart devices,” like lights connected to the internet, have looser security settings that make them easier to hack.

 

In looking for inspiration for Vietnam’s future, Hung looked at places from Hangzhou, China, where she heard about the traffic data, to Adelaide, Australia, where authorities installed smart sensors in trash bins, which alert garbage collectors when the bins are nearly full.

 

If the idea is to increase efficiency, Vietnam should think about energy use, said Tomaso Andreatta, vice chair at the European Chamber of Commerce in Vietnam.

 

Last month, the chamber held a forum on sustainable cities. In addition to rooftop solar panels and wind turbines, some cities are exploring ways to create energy from things that would otherwise be tossed out.

 

Trash can be burned, for example, to boil water for steam generators that produce electricity, a process known as waste-to-energy. This does risk increasing carbon emissions or decreasing incentives for recycling, however.

Aiming for zero waste

 

“More and more we realize that resources are limited, and producing waste destroys the quality of life,” Andreatta said. “Therefore, there’s been a movement worldwide to reducing waste to an absolute minimum, ideally zero.”

 

He went on to say, “The rapid development of the middle class and its lifestyle, which includes intensive air conditioning use, accounts for a considerable proportion of energy consumption growth.”

 

It may be the middle class that benefits most from a greener Vietnam, where the private sector steps in to create greater efficiencies, when the government is not involved.

 

Property developers are building enclosed communities where sustainability is part of the design, whether it’s motion-detecting lights, or insulation that keeps indoor temperatures manageable. One developer introduced pollution warnings. Another made a transportation app just for its residents.

 

But what about those who are not lucky enough to live in a gated community?

 

Government officials say they are listening to proposals across all sectors. They say that as Vietnam faces a major threat from climate change, it needs to make greater efforts at green planning.

 

“Climate change will have a big impact on the region,” said Huynh Xuan Thu, deputy chief officer of the Ho Chi Minh City Department of Architecture and Urban Planning.

 

Some of the ideas, such as a country full of electric cars, may be a pipe dream or years down the road. But Vietnam is getting started on some of the proposals.

 

In Ho Chi Minh City, officials are looking at traffic sensors and gathering data on congestion, which they hope to reduce through technology in the near future.

 

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Ai-Da, Humanoid Robot Artist, Gears Up for First Solo Exhibition

Wearing a white blouse and her dark hair hanging loose, Ai-Da looks like any artist at work as she studies her subject and puts pencil to paper. But the beeping from her bionic arm gives her away – Ai-Da is a robot.

Described as “the world’s first ultra-realistic AI humanoid robot artist,” Ai-Da opens her first solo exhibition of eight drawings, 20 paintings, four sculptures and two video works next week, bringing “a new voice” to the art world, her British inventor and gallery owner Aidan Meller says.

“The technological voice is the important one to focus on because it affects everybody,” he told Reuters at a preview.

“We’ve got a very clear message we want to explore: the uses and abuses of A.I. today, because this next decade is coming in dramatically and we’re concerned about that and we want to have ethical considerations in all of that.”

Named after British mathematician and computer pioneer Ada Lovelace, Ai-Da can draw from sight thanks to cameras in her eyeballs and AI algorithms created by scientists at the University of Oxford that help produce coordinates for her arm to create art.

She uses a pencil or pen for sketches, but the plan is for Ai-Da to paint and create pottery. Her paint works now are printed onto canvas with a human painting over.

“From those coordinates from the drawing we’ve been able to take that into a algorithm that is then able to output it through a Cartesian graph that then produces a final image,” Meller said.

“It’s a really exciting process never been done before in the way that we’ve done it…We don’t know exactly how the drawings are going to turn out and that’s really important.”

On show at the “Unsecured Futures” exhibition are drawings paying tribute to Lovelace and mathematician Alan Turing, abstract paintings of trees, sculptures based on Ai-Da’s drawings of a bee and video works, one of which, “Privacy” pays homage to Yoko Ono’s 1965 “Cut Piece.”

Ai-Da, whose construction was completed in April, has already seen her art snapped up.

“It’s a sold out show with over a million pounds worth of artworks sold,” Meller said.

The exhibition, which opens on June 12 at the Barn Gallery at St John’s College, looks at the boundaries between technology, AI and organic life.

Asked by Meller about “all the AI going on at the moment,” Ai-Da, who has pre-programmed speech, replied: “New technologies bring the potential for good and evil. It is a great responsibility to try to curb excesses of negative use, something that we all must consider.”

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In Double Whammy, Fitch Downgrades Mexico and Moody’s Lowers Outlook

In a double blow for Mexico, credit ratings agency Fitch downgraded the nation’s sovereign debt rating on Wednesday, citing risks posed by heavily indebted oil company Pemex and trade tensions, while Moody’s lowered its outlook to negative.

The Mexican peso weakened as much as 1.3% on the news.

Cutting Mexico’s rating to BBB, nearing junk status, Fitch said the financial woes of state oil company Pemex were taking a toll on the nation’s prospects.

Fitch said mounting trade tensions influenced its view, according to a statement issued shortly after the end of a meeting in the White House in which Mexican officials tried to stave off tariffs U.S. President Donald Trump has vowed to impose next week.

Following a surge in mostly Central American migrants arriving at the U.S. border, Trump threatened blanket tariffs on Mexican imports if it did not do more to stem the flow.

“Growth continues to underperform, and downside risks are magnified by threats by U.S. President Trump,” Fitch said.

Mexican President Andres Manuel Lopez Obrador took office in December with ambitious plans to build a $8 billion refinery, a decision ratings agencies and investors warned would divert funds from its more profitable production and exploration business.

“Further evidence that medium-term growth is in decline, whether as a result of policies that actively undermine growth or because of continued policy unpredictability, would put downward pressure,” Moody’s said in a statement.

Mexico’s finance ministry declined to comment.

Lopez Obrador has said the ratings agencies were punishing Mexico for the “neo-liberal” policies of previous administrations.

A Reuters analysis of Pemex accounts from the past decade shows debt increased by 75% during the term of Lopez Obrador’s predecessor, Enrique Pena Nieto, amid a landmark energy reform.

Pemex

Moody’s highlighted the risks posed by Pemex, formally known as Petroleos Mexicanos, the world’s most indebted oil company.

“The impact of the contingent liability represented by Pemex weighs increasingly heavily on the sovereign credit profile,” Fitch said in a statement.

The latest moves by the ratings agencies on Mexico’s sovereign rating could also ratchet up pressure on the oil company’s own rating, which is teetering on the brink being downgraded from investment grade.

In March, S&P cut its stand-alone assessment of Pemex by three notches, following Fitch’s move to downgrade its credit in January. S&P pegs the rating of Pemex to that of the sovereign rating and the stand-alone assessment does not equal a rating.

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US Refiners to Trump: Tariffs on Mexico Could Raise Gas Prices

U.S. refiners warned the Trump administration that tariffs on imports from Mexico could deliver a punishing blow to refiners and raise the cost of gasoline just as the U.S. driving season kicks into high gear, according to sources familiar with the discussions.

Trump surprised Mexico last week with a threat to impose 5% tariffs on all its exports to the United States unless the Mexican government took measures to stem the flow of illegal immigrants into the United States.

The United States imports more than 650,000 barrels of crude per day from Mexico, about 10% of total crude imports, according to U.S. government data. Refiners are also worried that Mexico could retaliate with tariffs on its imports of U.S. fuel, a major source of revenue for the U.S. industry.

“If these tariffs take hold, particularly if they’re able to get up to 25%, that could really impact the overall competitiveness of the U.S. refining industry,” said Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers trade association. The group has had discussions with the administration and Congress on the issue, Thompson said.

​Mexico oil complements US oil

Mexico’s oil is heavy and refiners need it to blend with lighter U.S. oil to produce diesel fuel, gasoline and other products. Tariffs would drive up the cost of those imports — and Trump has said he would increase levies by 5% monthly until they reach 25% in October.

Mexico is a prime supplier of heavy crude, which has been harder to come by since the United States imposed sanctions on Venezuela in January.

Gasoline prices have remained subdued as global oil prices have declined because of worries about worldwide economic demand. But without enough heavy crude, U.S. refineries could run plants at lower rates to save money if heavy crude feedstock becomes too costly, lobbyists said.

“The heavy crude market is tight and it’s only Mexico at the moment. The tariff would essentially make the crude uneconomical and we may have no choice but to consider run cuts,” said one Washington-based refinery lobbyist.

Refiners have said that could drive up the price of gasoline at the pump, just as American drivers take to the road in the period of the highest gasoline demand in the United States.

Texas lawmakers alarmed

International crude prices are near a six-month low, so any rise in gasoline prices is unlikely to be prohibitive.

Right now a regular gallon of gasoline in the United States averages $2.80, according to the American Automobile Association, but it tends to rise in the summer months.

“We are trying to educate the administration on what this means for gas prices,” the lobbyist said. The potential for tariffs has alarmed lawmakers of both major U.S. parties, including members of Congress from Texas, a reliably Republican state that voted for Donald Trump in 2016 but depends on the oil industry and cross-border trade with Mexico, which accounts for 39 percent of the state’s exports, according to the Texas-Mexico Trade Coalition.

“We shouldn’t be imposing tariffs on Mexico,” said Senator Ted Cruz, Republican of Texas. He told Reuters that Republican senators “had a vigorous and frank discussion” with White House officials on the issue.

Texas has 5.7 million barrels of daily refining capacity, more than any other state.

U.S. refiners are also concerned about retaliatory actions by Mexico, which buys about one-quarter of U.S. refined product exports. In March, Mexico bought about 1.3 million bpd of oil products from the United States, according to U.S. Energy Department data.

“It would be pretty devastating to us,” a second Washington-based lobbyist said.

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