Time to Remove Tariffs on Vital Trading Partners, Renew Focus on China
Section 232 tariffs are doing nothing to address China’s trade-distorting behavior, the fundamental challenge impacting the U.S. aluminum industry today.
- China produces more than 55 percent of global primary aluminum today, up from just 10 percent in the year 2000.
- Chinese primary aluminum capacity grew by nearly 6 percent in 2018, despite Section 232 tariffs and declining domestic demand in China. In fact, production picked up in the second quarter of 2018, about the same time that Section 232 tariffs were implemented.
- A recent Organization for Economic Cooperation and Development (OECD) report documented massive subsidies for Chinese aluminum producers. Fully 85 percent of the government support cited in the study went to five aluminum-producing firms in China.
- Meanwhile, global exports of downstream aluminum products from China hit record levels in 2018, growing by nearly 25 percent year-over-year
- According to aluminum research firm CRU, “Only 29% of Chinese aluminum demand growth was domestic-led in 2018, (the rest was export-led). This compares with 74% domestic demand, on average, in the preceding five years.”
Claims that the Section 232 tariffs on aluminum have driven a significant amount of U.S. investment are not supported by the facts.
- An analysis by the Aluminum Association counters a December report by the Economic Policy Institute (EPI) that falsely claimed that “[Section 232] aluminum tariffs have led to a strong recovery in employment, production and investment.”
- A review by the association found that 85 percent of the $3.3 billion in investment cited in the EPI report was announced prior to 232 tariff implementation and fully 95 percent of the investment was driven by unrelated market forces.
- While the primary aluminum segment (which represents about 3 percent of all U.S. aluminum industry jobs) has struggled in recent years, aluminum industry employment overall is up since 2013.
- This performance is not the result of Section 232 tariffs but rather the continuation of a near decade-long trend of industry investment and expansion in mid-and-downstream sectors, driven mostly by macroeconomic forces including a growing economy, increased demand for aluminum in transportation and targeted antidumping measures.
- While quotas and tariffs may provide some short-term benefits to a few select companies, artificially inflated prices for aluminum inputs and aluminum products will hurt consumers and ultimately harm demand, growth and investment for aluminum firms in the United States.
Meanwhile, trading partners essential to the U.S. industry’s continued growth, including Canada, are bearing the brunt of the Section 232 tariffs.
- The North American aluminum industry has evolved over many decades to become deeply integrated, and Canada’s smelters, which rely on renewable hydropower, are a significant source of responsibly produced aluminum for U.S. companies.
- A piece of aluminum may cross North American borders five or even six times before making it to an end consumer.
- A recent study by the Mercatus Center found that firms in China have a 15 percent approval rate for Section 232 product exclusion requests while Canada has an approval rate on only 3 percent.
- Fully 97 percent of U.S. aluminum industry jobs are in mid-and-downstream production and processing, meaning they rely on a mix of domestic of imported primary aluminum.
- The United States currently makes about 17 percent of all the primary aluminum it consumes. Even at full capacity, the U.S. could meet less than half of its primary aluminum needs.
- Continued growth and investment in the U.S. aluminum industry relies on a steady source of primary aluminum from trading partners like Canada who play by the rules.
The Trump administration has a historic opportunity to address structural aluminum overcapacity in China as part of ongoing trade negotiations while removing tariffs on market economy countries.
- A communique following trade talks at the White House in early February noted that negotiators covered “a wide range of issues” including “how market-distorting forces, including subsidies and state-owned enterprises, can lead to excess capacity.”
- The Aluminum Association is encouraging the administration to “prioritize the pervasive subsidies and other policies that fuel China’s structural overcapacity across the aluminum value chain as part of the ongoing bilateral negotiations.”
- Resolving ongoing structural overcapacity in China is the best way to ensure continued growth and investment in the domestic aluminum industry for the long-term.
- In the meantime, we are joining voices ranging from the Chamber of Commerce to the United Steelworkers and lawmakers from both sides of the aisle in calling for the removal of Section 232 tariffs as part of final implementation of the U.S-Mexico-Canada Agreement.
- To learn more please visit www.aluminum.org/TimeforAction.
About the Aluminum Association
The Aluminum Association represents aluminum production and jobs in the United States, ranging from primary production to value added products to recycling, as well as suppliers to the industry. The Association is the industry’s leading voice, providing global standards, business intelligence, sustainability research and industry expertise to member companies, policymakers and the general public. The aluminum industry helps manufacturers produce sustainable and innovative products, including more fuel-efficient vehicles, recyclable packaging, greener buildings and modern electronics. In the U.S., the aluminum industry supports $174 billion in economic activity and nearly 700,000 jobs. For more information visit https://www.aluminum.org, on Twitter @AluminumNews or at Facebook.com/AluminumAssociation.