Why Are We Making It So Hard For the Chinese to Provide Us With Lower-Cost Aluminum?
This WSJ article's hook is a huge cache of raw aluminum photographed in the Mexican desert. American aluminum manufacturers claim that this is Chinese aluminum being illegally transshipped through Mexico to get a lower tariff rate.
The U.S. Commerce Department says it is investigating the Mexican aluminum’s origin as part of a slew of trade complaints by the U.S. metals industry against China, many of which include allegations of transshipping.
China’s booming industrial production has reordered global markets, few more dramatically than aluminum. Fueled by access to inexpensive electricity and tax breaks, Chinese aluminum output doubled between 2010 and 2015. With local demand slowing,more of it was sent to the U.S., which was importing 40% of its aluminum by 2015—up from only 14% in 2010.
By the end of 2016, only five aluminum smelters will be operating in the U.S., down from 23 in 2000.
Alcoa Inc., the largest American aluminum maker, is splitting in two, isolating its profitable parts-making units from its troubled raw-aluminum operations. Alcoa Chief Executive Klaus Kleinfeld last year said illegitimate Chinese exports were “the major driver” of lower aluminum prices.
I suppose to an incumbent who has convinced himself that he has a God-given right to his historic market share, new sources of competition are always "illegitimate." But through the whole article I kept asking myself, why are we forcing these folks in China to jump through so many hoops just to bring us lower-cost aluminum? Given how fundamental aluminum is to almost every manufactured product today, we should be welcoming them as heroes, not forcing them to play silly games in the Mexican desert just to deliver their product at the price they want to sell it for.
It turns out that all this government effort to "protect" us from lower cost aluminum is to support an American aluminum industry that is tiny, maybe 2% of world production.
The industry would argue that the lower prices of Chinese imports are "illegitimate" in part because the sales price in the US is subsidized by Chinese taxpayers. To which I answer, "so what?" Or actually, to which I answer, "yay!" If another country's taxpayers want to pay higher taxes so that they can provide valuable raw materials to US industry at lower prices, why in the heck would we want to stop them?
Rick C:
When the last of the factory jobs are gone, and so are the plumbers and construction workers and financial workers and programmers, I wonder how a nation of restaurant workers will keep each other afloat or have the money to go to parks.
September 8, 2016, 2:41 pmMike Powers:
Haw. Coyote figures that there should also be no minimum wage, so he can pay his workers pennies and hire bunches and bunches of them; this will allow him to economize on cleaning equipment because he can give 20 guys toothbrushes and tell them to clean out the bathrooms.
September 8, 2016, 3:39 pmsch:
Some of the metal working sites I look at are complaining about the quality of chinese aluminum, these are people who buy in lots of 1/2 to 10 tons at a time. In a year on year basis net aluminum smelting in the US is down from 1.5M tons/yr to 700-880,000 tons from 2015 to 2016. This reflects the decline in #s of primary producers. Looks like in 3-5yrs net production or primary aluminum will be only a few %
September 8, 2016, 3:42 pmof the annual consumption in the US. For reference consumption of aluminum in US is ~5M tons per year. The net price of aluminum was
~$0.75 +/- $0.25/lb from 1989 to 2006. It spiked up to $1.40 in 2007-8, dropped to $0.60 in Jan 2009, up to $1..20 in 2011 and drifting down to the historical level of $0.72 since then. For more background: http://www.americanthinker.com/articles/2015/11/the_avoidable_destruction_of_an_iconic_american_industry.html
Another POV: https://www.fastmarkets.com/base-metals-news/aluminium/opinion-china-not-to-blame-for-lack-us-smelting-competitiveness-112418/ Apparently most of US imported aluminium comes from a variety of sources, about 10% from China.
jon49:
You guys should spend some time reading about how economics works.
September 8, 2016, 4:59 pmToddF:
I would ask why we make it so hard to manufacture low cost aluminum in America.
September 8, 2016, 5:36 pmJerryskids:
The dangerous thing is that if the Chinese keep lowering their costs and increasing their subsidies to maintain sales, they may at some point start offering us stuff for free - and then where would we be? I don't know about you, but I wouldn't want to live in a world where people give you free stuff.
September 8, 2016, 6:04 pmMatthew Slyfield:
Government.
September 8, 2016, 6:06 pmobloodyhell:
}}}} why in the heck would we want to stop them?
Because... because... Alcoa wants to!!!
September 8, 2016, 6:35 pmNot Sure:
"When the last of the factory jobs are gone..."
In 1800 in the US, 80% of the workforce was employed in agriculture. Today, it's more like 2% due to productivity increases. Why do you suppose that the same thing isn't true for factory work? After all, manufacturing in the US is at a near record all time high, you know.
September 8, 2016, 6:39 pmAgammamon:
Yeah, because *manufacturing* jobs is what makes an economy - after all, look how well the Soviet Union and China did. Comrades! We are simply not producing enough tons of new tractors.
September 8, 2016, 7:34 pmBenjamin Cole:
Yes…but.
The US is also a regional economy. If you study regional economics, you know an economy can only grow by 1) exporting goods and services, 2) tourism, or 3) taxing money in. The rest is taking in each other's laundry.
I think the free traders have been a little glib about chronic $500 billion a year trade deficits. There is no free lunch, remember?
We have to borrow money or sell assets to finance all those imports. When we sell assets, we permanently encumber our economy. Rents from the Waldorf could travel offshore in perpetuity.
Detroit was the richest big city on the planet in 1960, in per capita terms. Maybe the unions wrecked Detroit, maybe local regs, maybe urban black culture, maybe cheap imports, maybe ossification, you name it.
The fact is when the regional economy Detroit stopped exporting cars, the regional economy tanked.
Th US would be better off with no trade deficits.
BTW, I would like to see a bunch of op-eds for the decriminalization of push-cart and truck-vending, and the total elimination of property zoning.
We believe in free trade for multinationals, but not in our own neighborhoods?
September 8, 2016, 9:41 pmtimworstall:
"The rest is taking in each other's laundry."
The entire economy is taking in each others' laundry. Everything we produce is consumed by another human being. Everything we consume was produced by another human being. The whole economy is nothing but each other producing and consuming for others with the division and specialisation of labour. And that's it.
September 9, 2016, 1:09 amDaniel Barger:
One factor in the aluminum game is electricity. Turning bauxite into pure aluminum requires a massive amount of electricity.....a commodity that is in shorter supply and costs more EVERY YEAR thanks to one of the very few
September 9, 2016, 4:33 ampromises Obama has actually kept. His promise to BANKRUPT the coal industry and to drive electricity costs through the roof. Wonder why the American aluminum producers have not kept pace? The cost and availability of power is a major reason.
Seekingfactsforsanity:
You should spend some time reading about how economics work in China. There is economics per text and theory, then there is economics that are dominant in the political world, and it is not in compliance with "how economics work" in theory or in accordance with our libertarian dreams. Its a messy mix. In any game, play by the rules when others don't and you will eventually lose that game
September 9, 2016, 4:48 am.
Seekingfactsforsanity:
Economics per text and theory is not the same as the economics that are dominant in the political world,. Its a messy mix. In any game, play by the rules when others don't and you will eventually lose that game
September 9, 2016, 4:52 amBobSykes:
Your attitude, "so what," is exactly what has led to the destruction of the American working class. Free trade is an absolute evil that only (and knowingly) benefits the 1%, of which you, yourself, are a member.
If we are going to have free trade (and open borders), then the benefits that now only accrue to the Ruling Class must be clawed back by high taxes and redistributed to the victims.
September 9, 2016, 5:35 ammx:
And, for the flipside, have you seen what the air looks like in, say, Beijing? That's what happens when massive amounts of dirt cheap electricity is your priority above all else.
September 9, 2016, 8:28 amErikTheRed:
If economics in text and economics in theory don't match up, then the economics in text are wrong. Austrian school economics deal with these situations quite cleanly, which is why many people find them more practical than the Classical or Keynesian schools (but academics and people in power find Austrian Economics problematic because it tells them that they should have less money, power, and prestige). Heck, even Frederic Bastiat had this figured out half a century before the Austrian School officially formed (see: The Candlemaker's Petition).
September 9, 2016, 8:55 amDarkness Dragon:
No, his attitude is what will result in a more efficient economy.
You want to know who really steals your jobs? It's either your lack of merit or your own government's laws for increasing the costs to hire you which you certainly voted for. If you cannot compete in a global economy, you deserve to eat dust.
September 9, 2016, 10:15 amDarkness Dragon:
America made its own bed, and as such I'll happily support any attempts at getting cheap goods through. If you're so worried about someone stealing your job, maybe you should quit looking at the person handwaving money in your eyes and turn against the person who has his hands in everyone's pockets (the government). Because at the end of the day, there's only one way to actually lose a job: you've proven too costly/liable for the position and whether it's due to your own lack of merit or the cost of hiring you increased, it's not something the business owner should be held responsible for since he's the one that tried giving you a job in the first place.
September 9, 2016, 10:22 ambannedforselfcensorship:
China is most likely dumping the stuff now as their housing market growth is down,i.e. fewer window frames needed.. State-run industries make the stuff and they can't lay off more people so they sell at a loss.
I'm sympathetic to the free trade angle, but I'm also sympathetic to those who get dumped on.
(In reality, if you apply the free trade ideal back onto China, you will oppose their subsidies as much as you'd oppose any our own government creates.)
September 9, 2016, 10:30 amSamWah:
A friend of my son's lives there. He told me the pollution NEVER gets (reported on) above the 250ppm the government "allows".
September 9, 2016, 10:47 amNot Sure:
"Th US would be better off with no trade deficits."
You almost certainly have a trade deficit with your local supermarket. Do you think you'd be better off personally producing all the stuff you run up your current deficit by buying from them?
September 9, 2016, 10:47 amRick C:
Wow, it's almost like I mentioned several other types of jobs, and assumed the reader was smart enough to ask "if we keep losing jobs faster than the economy can figure out new kinds of jobs for tens of millions of people, what are we going to do in the US?"
Are _you_ ready for the lifestyle of a Pakistani bricklayer?
September 9, 2016, 11:45 amRick C:
"If you cannot compete in a global economy, you deserve to eat dust."
Man, I can't wait to throw those words back at you when your standard of living is that of a Bangladeshi rice farmer or the like.
September 9, 2016, 11:46 amMatthew Slyfield:
"I'm sympathetic to the free trade angle, but I'm also sympathetic to those who get dumped on."
I am skeptical that dumping ever occurs on any significant scale. Accusations abound. Convincing proof is rarely if ever offered.
No one, not even a government can afford to operate at a net loss for more than a very short time.
September 9, 2016, 11:48 amDarkness Dragon:
Funny you say that. I've worked under the table my entire life, doing all sorts of different work your ilk will only brush off as being beneath you or claim somehow "exploits" the worker. Only three times have I held any official job, and I made a far better deal while under the table even though my pay rate was lower.
September 9, 2016, 12:13 pmNot Sure:
Economies don't figure out new kinds of jobs for people. People do. And they would do more of it if the government didn't actively interfere with their creation.
September 9, 2016, 12:38 pmFred_Z:
Chinese plumbers can unplug my toilet from China? Chinese construction workers can frame a stud wall in Chicago over the internet?
Holy shit those chinks are fuckin' amazing!
September 9, 2016, 7:52 pmFred_Z:
I actually hope the Chinese have no idea at all how economics works and continue to sell us good stuff for less than their real costs of production. We win they lose.
September 9, 2016, 7:54 pmFred_Z:
So, you admit the Chinese are far tougher than you wimpy Americans? They thrive on dirty air?
September 9, 2016, 7:56 pmFred_Z:
Bull. Shit.
Free trade has delivered material prosperity to the poor more than anything else, ever. Those who got rich from it took less, far, far, far less than the assholes who used to claim the right to sell to us from their company store.
For years Americans were brutalized by monopolists and ogilopolists forcing people to buy expensive stuff because they had no alternative. All for the profit of a few.
I remember the days when a washing machine costed $4,000.00 in today's currency, when 500 sheets of paper costed 20 times what they cost today.
Illiterate, innumerate, ahistorical children need to suffer a bit more before opining.
September 9, 2016, 8:02 pmNot Sure:
"That's what happens when massive amounts of dirt cheap electricity is your priority above all else."
When, exactly, was that the priority (above all else) in the US?
September 9, 2016, 9:04 pmBenjamin Cole:
Not Sure-
But I run surpluses with outer local businesses, so I do not run a permanent trade deficit.
If I did chronically spend more than I earned, I would have to borrow money continuously, or effectively sell off assets (mortgage the house etc).
There is a caveat in this, I will concede. The US can print money and I (sadly) cannot. Not only that, the US appears to able to print money without causing inflation (see QE).
So, maybe there is a free lunch, for now, for the US.
James Grant says it will end in misery, but he has been saying that since 1971 or so.
September 9, 2016, 9:06 pmKurt:
The American Coal Generation plants that are shutting down were first forced to spend millions of scrubbing technology the Chinese plants don't have and didn't have to pay for.
September 9, 2016, 9:09 pmIn Salem, MA; the plant even sat on the waterfront and the coal supply was delivered by ship, no trains or trucks. The useful equipment was dismantled and shipped to China.
Don't try to pretend that 'Globalization' is a level playing field. It's dogma.
Not Sure:
"If I did chronically spend more than I earned, I would have to borrow money continuously, or effectively sell off assets (mortgage the house etc)."
So- if you don't spend more than what you earn, it's okay to buy products made in other countries?
September 9, 2016, 9:54 pmNot Sure:
"The American Coal Generation plants that are shutting down were first forced to spend millions of scrubbing technology the Chinese plants don't have and didn't have to pay for."
So- massive amounts of dirt cheap electricity was not a priority above all else?
September 9, 2016, 10:09 pmDaniel Barger:
It's more than possible to produce electricity from coal and not create the smog they have in China.
September 9, 2016, 11:04 pmThe Chinese simply DO NOT CARE so they pollute. The SCOAMF and his agenda to destroy the coal and all power generation based on hydrocarbons has seen more than 15,000 megawatts of generation capacity closed with another 37,000 facing closure in the next decade due to his rules.....with NOTHING AVAILABLE TO REPLACE THEM. I don't care if it adds 50% to the price per KwH to clean up the pollution from coal....it is STILL cheaper than the cost of power when you have lost 40-50% of your capacity to stupidity and cupidity.
Zachriel:
Coyote: The industry would argue that the lower prices of Chinese imports are "illegitimate" in part because the sales price in the US is subsidized by Chinese taxpayers. To which I answer, "so what?"
So you are not a supporter of free markets.
The actual markets are not frictionless. The problem is that China can target industries in the U.S. Once those industries collapse, they are unlikely to return due to economies of scale.
September 10, 2016, 9:53 amgr8econ:
Remember when Bush imposed tariffs on steel imports. It saved some jobs in the steel making industry but caused the loss of 2-3 times the number of saved jobs in industries that consumed steel. Why should we think aluminum will be any different.
Also the dumping argument is the same as the predatory pricing argument - lower price, run the competition out of business, then raise prices and earn a monopoly profit. The problem is that the raise prices part is never seen.
September 10, 2016, 2:50 pmNot Sure:
"Once those industries collapse, they are unlikely to return due to economies of scale."
In which industries has this happened?
September 10, 2016, 5:35 pmMcThag:
I, for one, want to see that there's domestic capability to turn ore into aluminum, lead, steel, what have you because those are all defense items.
If you cannot make metal, you cannot manufacture.
If you cannot manufacture, you are subject to the whims of those who can.
While I won't say that free trade is an unfettered evil, it's also pretty clear we've not had any in the states for longer than I've been alive. What can I compare it with? I've never known actual free trade.
What we have is very unfree trade domestically and we're becoming subject to the whims of places that will underprice us out of our domestic markets. As someone mentions, this is by design and the people that benefit most are a very small group.
September 10, 2016, 6:56 pmmlhouse:
The tricky piece of the entire argument is when government subsidies are in play. Then it isn't "free trade" and looking at policy on how to counter such distortions to the marketplace are legitimate issues. Unfortunately the most common counter-policy is more government subsidies or retaliatory trade barriers which further distorts the market.
If this was a world with perfect information and benign policy, countering subsidies with tariffs would restore market prices. That is, if government A subsidized a ton of aluminum by 5%, putting a 5% tariff on the product would be the same as the "true" market price for imported aluminum. OF course, perfect information does not exist and policy is far from benign.
September 10, 2016, 7:12 pmJohn O.:
TANSTAFL. There ain't no such thing as a free lunch. There's no way for the Chinese to get away with giving free stuff. Their economy is looking like the 1980s in Japan. Everyone was scared that the Japanese were going to take over American business because of their success in the post-WWII economy was impressive but what happened is the Japanese economy crashed in the late 1980s and early 1990s to create what is known as the Lost "Decade" and where the economy has sputtered along ever since. All the attempts by the Central Bank of Japan and the Ministry of International Trade and Industry has done nothing to bring back the boom that the Japanese experienced before the crash.
September 10, 2016, 7:13 pmJohn O.:
What sets the market price? In the case of China they set the market price they want by subsidizing exports but that doesn't mean its economically wise for them. It might seem like it hurts us to have to compete with subsidies like China but the appropriate response is to find out how low these Chinese companies are willing to go and buy out their below market rates and resell them at the normal market price. If I was ALCOA I would be feeling out the Chinese exporters to find out how much they were willing to sell me and at what low of a price and then start buying it up at that rate in order to get a cheap deal. It might mean a temporary suspension of aluminum extraction in the Americas but the money saved would be gained in new cheap source that would allow for short term rise in profits. I really don't understand why this strategy isn't used more often.
September 10, 2016, 7:23 pmNot Sure:
"we're becoming subject to the whims of places that will underprice us out of our domestic markets"
And then we can use the money we saved buying those underpriced products for other things? Boy, that would sure suck, wouldn't it?
September 10, 2016, 7:42 pmJohn O.:
I should point out that the Banks of this Country print money; not individual businesses nor the Government directly. When the government borrows money by selling Treasury instruments, its sells them on the open market which is usually purchased by banks and other creditors as a way to earn income from interest on a specific term on a loan. Nothing in the trade deficit is usually paid for directly by any of the money the US government has borrowed from taxpayers and creditors, however it can be paid for by businesses and individuals who are willing to pay the goods with credit but that liability is on the person doing the importing and not on the US Government directly.
The concept of the trade deficit comes from the old economic thinking when Gold was the money of the world. During the 19th century when the writings of Adam Smith were influential, economies like Great Britain were worried about how much gold coinage was leaving London banks to places all over the world. It lead to really terrible economic policies such as the Corn Laws that exacerbated a shortage and high price of wheat in Britain during a period of unstable grain harvests in England causing the price of staple foods to dramatically skyrocket for Great Britain. All of the laws to control the outflow of gold from British economy was futile as intervening only created a problem of making everybody else poorer by raising their costs above what they could comfortable afford.
The same bad economic thinking goes into modern economic reporting despite the fact it doesn't do anything but fuel irrational economic fear. There are many countries of the world that run up large trade deficits per GDP that have little to worry about economically because they don't interfere with protectionism or complaints to the WTO about dumping. They import their needs, they spend their money and that money comes back in some other form in some other fashion which then repeats the cycle.
September 10, 2016, 7:56 pmJohn O.:
The fracking boom has depressed oil prices so low that its actually put the Saudi's on notice. They can't afford to subsidize their economy any more with the prices so low. Same with Venezuela which only gets worse as time goes on.
September 10, 2016, 8:15 pmAgammamon:
"I'm also sympathetic to those who get dumped on."
Company A makes too much of something but should not be allowed to sell it at a lower price because it might hurt company B.
If both companies are inside the US then people will say that makes no sense.
If company B is outside the US and A inside people will say that makes no sense.
If company A is outside and B inside - that's a completely necessary government intervention.
September 10, 2016, 8:19 pmAgammamon:
Wow, its almost like you said nothing of the sort.
You were saying that a *nation* of restaurant workers is insufficient to keep an economy afloat.
Well, first of all, if the nation is nothing but restaurant workers then either *that's actually working for us* or government regulation prevents people from working elsewhere. Secondly, the largest economic sector in the US *right now and pretty much since the 1990* is the service sector. And thirdly, manufacturing is the *low value-add* part of getting a product to consumers. If we are (and we are) outsourcing manufacturing - while keeping *design* jobs here - then there's no net loss of jobs, just an ongoing switch between economic sectors.
The big money stuff is in design and logistic - getting the product into existence and then shepherding it through the manufacturing and distribution chain to the consumer.
September 10, 2016, 8:27 pm