August 2018 - President Trump adjusted aluminum tariffs to 10 percent under Section 232 of the Trade Expansion Act of 1962 after an investigation into the national security implications of imported aluminum. While the Aluminum Association appreciates the president’s support for a vibrant and growing domestic aluminum industry, across-the-board tariffs won’t address the fundamental problem of massive aluminum overcapacity in China—and may have negative unintended consequences for many aluminum producers here at home.

The China challenge

Subsidized production in China, which leads to unfair and illegal trade practices, threatens the industry’s continued health. Government subsidies to Chinese producers of both primary aluminum and semi-fabricated aluminum products (which violate terms of membership in the World Trade Organization) have resulted in significant overcapacity in the market, hurting U.S. plants and workers.

Chinese primary aluminum overcapacity continues to grow unabated, distorting markets and encouraging dumping. Excess aluminum capacity in China last year totaled 11 million metric tons, equal to 40 percent of the rest of the world’s output of 27.5 metric tons. And, subsidized downstream overcapacity  drove a 230 percent spike in Chinese semi-fabricated aluminum volume to the U.S. since 2012.

Artificial incentives, subsidies and central planning by the Chinese government have driven much of the production excesses even when doing so made little economic sense.

Coal-reliant Chinese aluminum is among the most carbon-intensive in the world—one more reason for China to stop producing metal the world does not need. If Chinese smelters were a stand-alone country, they would be the 16th highest contributor to global carbon emissions worldwide. Carbon emissions from North American primary aluminum production have declined nearly 40 percent.

The good news is the U.S. now has an historic opportunity to engage its trading partners to address persistent Chinese aluminum overcapacity, provided we can resolve trade disputes amongst ourselves. Now is the time for the U.S. government to negotiate a long-term, enforceable agreement with China that tackles this perennial problem once and for all.

Steps toward progress

In outreach to the administration and others, the Aluminum Association has called for the following:

• Permanent, quota-free tariff exemptions for all countries designated by the Commerce Department as market economies;

• The creation of an aluminum import monitoring system to ensure that no unfairly traded metal enters the U.S.;

• Pursuit of targeted actions on products benefiting from illegal government subsidies; and

• Immediate government-to-government negotiations with China to address the trade distorting practices that drive structural aluminum overcapacity.

Additionally, we believe that collective action at the global level could help drive a change in China’s behavior. In April, the Aluminum Association released a joint letter with the European, Canadian, Japanese, Brazilian and Mexican aluminum associations. The letter urges G20 leaders to create a global forum on aluminum excess capacity.

In the words of Larry Kudlow, just prior to his appointment as National Economic Council director: “[The U.S. should] lead a coalition of large trading partners to let China know that they’re breaking the rules.” We agree.

Global interdependence

The U.S. aluminum industry is heavily reliant on imported metal to meet growing demand. Even if we brought every U.S. aluminum smelter back online tomorrow, we could not produce nearly enough primary aluminum domestically to satisfy growing demand. The U.S. produces less than 1 million metric tons of primary aluminum; our total capacity is less than 2 million metric tons; yet we consume 5 million to 6 million metric tons a year. The need for a steady and predictable supply of metal is all the more important during a time of historically high demand for aluminum in the U.S. Disrupting supply chains threatens this record and the 97 percent of U.S. jobs in aluminum processing.

We need to maintain our trading relationships with the many countries around the world that play by the rules.

Efforts to strengthen U.S. aluminum will only succeed if we all recognize the industry’s global interdependence and maintain a laser-like focus on the real problem: structural overcapacity in China.

A sustainable future

Despite global trade challenges, the aluminum industry continues to grow in the U.S. with overall jobs up 3.5 percent since 2013 and more than $2.5 billion invested in domestic manufacturing. But during a period of record demand, the domestic industry should be growing even more.

U.S. aluminum producers aren’t asking for special treatment, but rather to compete in a fair and free market where all countries follow a rules-based trading system. Now is the time for a negotiated, government-to-government agreement with China on overcapacity to make this vision a reality. MM