Bloomberg: The Metal that Started Trump's Trade War
Friday, September 28, 2018
The Aluminum Extruders Council was mentioned in an article by Bloomberg Businessweek outlining the steps that brought the Section 232 tariffs to fruition. The following is an excerpt. Read the full article here.
As recently as 2000, the U.S. was home to 23 aluminum smelters. Today there are six. Aluminum companies decided a long time ago that it was cheaper to produce the raw metal in areas outside the U.S. that had easy access to cheap hydro, thermal, and petroleum power—Canada, Iceland, Russia, and the Middle East. As aluminum became less expensive to make elsewhere, American companies focused on more profitable products made with low-cost imported raw ingot.
That’s been great for companies that use the metal: carmakers, airplane builders, brewers (all those cans), and aluminum sheet manufacturers. But the smelting business in the U.S. has been crushed, shedding two-thirds of its jobs over the past five years. Of the remaining smelters, Century owns three, including Hawesville. As aluminum prices sank, so did Century’s profits, to the point that by the end of 2015 the entire U.S. smelting industry was on the brink of extinction. Century lobbied the government and laid off about a third of its workers as its U.S. plants inched toward oblivion. Then Donald Trump got elected, and everything changed.
In March 2018, Trump fired the first major shot of his international trade war when he announced a 25 percent tariff on foreign steel and 10 percent on aluminum. The result has been chaos on both fronts, but particularly with the latter. The U.S. still produces two-thirds of the steel it uses, but it imports 85 percent of its raw aluminum. Through Sept. 19, companies have had to pay $625.4 million in aluminum tariffs, as they can’t find enough domestic supply. Canada has retaliated with its own tariffs. Since a piece of aluminum can take as many as five round trips across the U.S.-Canada border on its journey from ingot to finished product, what used to be the free passage of goods between two friendly nations has become an expensive logjam.
There is one company that’s happy: Century Aluminum. On Aug. 22, at a ceremony celebrating the restart at the Hawesville smelter, Chief Executive Officer Michael Bless stood in front of about 100 of his workers, like a coach giving a speech after a come-from-behind victory. “Our country was within months of seeing an entire industry disappear,” he said from a makeshift stage.
A thin, bald man with glasses, Bless gave a tip of his cap to U.S. Secretary of Commerce Wilbur Ross, who was sitting nearby as a sort of guest of honor. “Now, for the first time in decades,” Ross said, “we’re changing the trajectory of the entire aluminum industry. … This is a case of the U.S. government finally standing up for American workers, American families, and American national security.”
So how did this happen? How did Trump pass a tariff against the broader wishes of an industry he was claiming to protect? How did Century Aluminum, a midsize company with fewer than 2,000 workers, beat back practically every other company in America to help bring about one of the most dramatic changes in trade policy in a generation? Throughout Trump’s public campaign for aluminum tariffs, Century was front and center. Bless has been at Trump’s side at numerous White House events; his workers paraded on cable news as evidence of hardworking regular folks undercut by illegally subsidized foreign aluminum. The proceedings were wrapped in Americana and tinged with a Trumpian sense of victimization.
In January 2017, about a week before Trump’s inauguration, the Obama administration initiated a WTO complaint against Chinese aluminum. But Trump had other ideas. To him, the WTO is just another inscrutable globalist bureaucracy full of America haters. Plus, he was never likely to take up an action Obama started. He wanted to go bigger and hit not just China but the whole world. He needed a bludgeon—and found one in a little-known provision of trade law. Section 232 of the Trade Expansion Act of 1962 allows a president to restrict imports in the name of national security.
A 232 tariff has the advantage of allowing a president to bypass the WTO. But there’s a catch: The administration must first investigate whether national security is truly at risk. And so, in April 2017, Trump announced an investigation into steel and aluminum imports. It was up to Ross, the Commerce secretary, to conduct hearings to figure out if imports could eventually force all U.S. smelters out of business and imperil America’s supply of military-grade aluminum.
In June 2017 industry groups gathered at the Commerce Department building in downtown Washington, a few blocks from the Trump International Hotel. Invitees were delighted that, at last, a president was willing to teach China a lesson. Manufacturers specializing in aluminum products were particularly excited, given the vast quantities of wheels, car bumpers, window frames, and other basic goods coming into the U.S. from across the Pacific. “We thought we could be a poster child,” says Jeff Henderson, president of the Aluminum Extruders Council, a Chicago-based trade group whose members manufacture about $17 billion worth of products each year.
The new-day-dawning atmosphere didn’t last long. Henderson and his industry peers quickly realized the administration wanted to talk about tariffs on just raw materials, not on higher-value items the U.S. makes. That would mean rising prices for most of the industry, since, again, about 85 percent of raw aluminum is imported. At one point there was talk of tariffs as high as 30 percent on foreign-made aluminum, which would have been devastating to Henderson’s members. For six months, Henderson went back and forth between Chicago and Washington, pleading with administration officials to listen to reason. “We felt completely ignored,” he says.
Jorge Vazquez, the founder of Harbor Aluminum, provided research and input for the Commerce investigation. “The outcome, clear and simple, was not rational,” he says. “The Commerce Department, it seems, basically heard Century and only Century. The Aluminum Association was against this, the Council of Extruders was against it, end users were against it, independent experts were against it, the DOD was against it—even the president’s economic advisers were against it. Only Century’s view prevailed.”
But to people like Henderson the tariffs have been a disaster and, in fact, accomplish the opposite of what they claim to do: By making the metal more expensive in the U.S., they give an implicit cost advantage to all those overseas wheel, car bumper, and window frame makers, and every other foreign company that manufactures things out of aluminum. “This is the most self-destructive trade act I’ve ever seen,” Henderson says.