RPT-COLUMN-Time to forget tariffs and reset U.S. aluminium policy: Andy Home
Andy Home
5 min read
(Repeats Friday column without change. The opinions expressedhere are those of the author, a columnist for Reuters)
* U.S. primary aluminium production 2017-2020: https://tmsnrt.rs/3u67jJX
* U.S. unwrought imports 2013-2020: https://tmsnrt.rs/2NknG4U
By Andy Home
LONDON, Feb 19 (Reuters) - The new United Statesadministration seems in no rush to lift the aluminium and steeltariffs imposed by Donald Trump in 2018.
Indeed, one of Joe Biden's first acts was to reverse Trump'sfinal-hour lifting of tariffs on aluminium from the United ArabEmirates (UAE).
"The available evidence indicates that imports from the UAEmay still displace domestic production and thereby threaten toimpair our national security," he said, true to the spirit ofthe original Section 232 investigations.
But three years of tariffs have done nothing to boostnational aluminium security.
The country's primary metal production is falling again.Manufacturers have been hit with higher prices, even for metalthat isn't imported, while the politics around tariffs haveoccasioned an unseemly spat with ally Canada.
Biden has the chance to reset the country's aluminiumstrategy and the World Trade Organization (WTO) has obliginglygiven him time to do so, deferring a ruling on the tariffs untilat least the second half of this year.
A coalition of aluminium-producing nations is hoping theUnited States will rejoin the fight against China, described bythe U.S. Aluminum Association as "the single biggest threat toU.S. aluminum".
RISE AND FALL
The explicit aim of the tariffs was to enable the dwindlingnumber of U.S. aluminium smelters to operate profitably andreopen idled capacity.
Capacity utilisation had fallen to only 39% in 2017 and theambition was to lift that to 80%.
Post-tariff restarts by Magnitude 7 Metals and CenturyAluminum helped to nudge the dial upwards andannualised production rose to 1.15 million tonnes at the end of2018 from 750,000 tonnes a year earlier.
However, Alcoa announced in April last year that itwas mothballing its Ferndale smelter in the state of Washingtonwith the loss of 230,000 tonnes of production capacity.
At the end of last year national annualised production hadfallen to 920,000 tonnes and capacity utilisation to about 50%.
Equally significantly, there has been no sign of investmentin new smelting capacity. The United States remains as dependentas ever on imports of primary metal.
Last year's imports of 3.5 million tonnes were down 11% on2019, but the real driver was not tariffs, but rather thewithdrawal of Russian producer Rusal from the U.S.market.
Russia was second only to Canada as a supplier to the UnitedStates until April 2018, when U.S. sanctions were imposed onRusal and its owner Oleg Deripaska.
Although the sanctions were lifted in January 2019, it isclear that Rusal has defensively restructured its global sales.Russian imports have collapsed from 725,000 tonnes in 2017 toonly 136,000 tonnes last year.
Shipments from Canada have filled the gap, with U.S. importsfrom its neighbour rising 10% in 2019.
BROKEN EXCLUSIONS
U.S. imports of semi-manufactured products dropped by aharder 20% last year. But here, too, the decline had less to dowith tariffs than with the early-year COVID-19 demand collapseand targeted duties.
The United States imposed preliminary anti-dumping duties onimports of common alloy sheet from 18 countries in October lastyear, contributing to a 36% decline in imports under the "plate,sheet and strip" customs code.
Such product-specific duties have proved a lot moreeffective in stemming imports than the scattergun tariffs.
That's in part because of what the Aluminum Association hascalled a broken exclusions process.
"Through Dec. 3, the (Commerce) Department has granted thisyear alone Section 232 exclusions that cover 8.2 billion poundsof can sheet – more than 263% of the total annual market demandfor can sheet in the United States," AA President and CEO TomDobbins wrote to outgoing Commerce Secretary Wilbur Ross inDecember.
If importers chose to use those exemptions to importtariff-free product, U.S. domestic demand would be zero for thenext two years, he warned.
The number of exclusion requests for both aluminium andsteel "now far exceeds 200,000 and is growing, and the processhas been plagued by delays, questionable decisions and acomplete lack of transparency", according to the Coalition ofAmerican Metal Manufacturers and Users (CAMMU).
CAMMU, a coalition of associations representing more than30,000 companies and a million workers, is calling for PresidentBiden to end steel and aluminium tariffs. The AA wants more"targeted trade enforcement".
Both think the new administration should, in the words ofCAMMU, now focus on "re-engaging with our trading partners on acoordinated response to address the root cause of globaloversupply in steel and aluminum: excess capacity in China".
BACK TO THE NEGOTIATING TABLE?
Donald Trump's decision to impose unilateral tariffs stoppedin its tracks a multinational campaign to tackle China'sover-production and massive exports of aluminium.
One of the parting shots of the Obama administration was theJanuary 2017 filing of a complaint with the WTO, accusing Chinaof illegal state support for its aluminium sector.
More ammunition has come from a 2019 OECD report, whichfound that subsidies were not uncommon along the aluminium valuechain but that they were "most pronounced in China", conferringa cost advantage to Chinese producers and exporters of aluminiumin semi-manufactured form.
The stage, in other words, is set for agovernment-to-government conversation with China, if the UnitedStates chooses to return to its place at the negotiating table.
The timing for renewed engagement could be highlypropitious, given China's leadership is facing a tough trade-offbetween its new commitments to climate neutrality and astrategic industrial sector that remains overwhelmingly relianton coal for its power.
However, a pivot back to the international stage is going tobe difficult while tariffs remain in place on key negotiatingpartners such as the European Union and Canada.
Particularly the latter.
Last year's tariff tussle was political turbulence. Theeconomic reality, as even the original Section 232 report noted,is that Canada "is highly integrated with the U.S. defenseindustrial base and considered a reliable supplier".
Canada has twice as many aluminium smelters as the UnitedStates and potentially room for more. U.S. national championAlcoa is now operating more smelter capacity across the borderthan on its home turf.
If the United States is committed to maintaining domesticproduction, it may need to be more creative and borrow from therare earths playbook, where the Department of Defense isproviding direct funding.
A domestic rethink needs to be part of a broader reshapingof strategy on how best to achieve national aluminium security.Because the past three years have shown that tariffs aren't thesolution.
