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?
lol
1. Its not a game.
2. The rules are physical rules. You can no more break the rules of economics than you can break the rule of gravity.
3. The best way to 'play the economics game' is to not give a damn what your trading partners do on their side of the border. Open up unilateral free trade and prosper.
Its why there have always been perishingly few genuine monopolies without government interference.
You cut prices to drive out competition but, once that is done, if you raise your prices too much then you open up an opportunity for a new entrant to undercut you,steal market share, and force you to lower prices again.
Which is why the monopoly seeker gets in good with his local politician to use the power of the state to forbid new entrants.
Got a group of local businessmen trying that right now to protect their businesses against a (so far only theoretical) Walmart being built nearby.
If these people are going to disproportionately lose out due to free trade then that means they have disproportionately benefitted from the prior mercantilist regime.
In which case either *they* need to pay out reparations or we are simply leveling the playing field.
Funny you should say that when its been the embrace of free trade that has seen the greatest increase in human prosperity *ever* over the last 200 years.
In the last 30 we've seen an incredible reduction in world poverty.
Every single country that has embraced planned economies or mercantilism has turned into a shithole. Every single one.
But all you idiots would like to throw away all that we've gained so that someone - not *you* of course, you're too skilled and valuable, but someone - doesn't lose their current job and have to look for another one.
The only genuine solution for that is to end the domestic subsidies and other distorting regulation.
Its not to add on to the cost of imported materials. At best all that does is move money from one disfavored group to one politically favored group - which *we're* not in*.
The materials are *fungible*. If China won't sell them that means China will sell them to someone else and the guy that would have sold the materials now has to find a new customer - us.
And, frankly, smelting is a pretty mature process. Its not going to take a Manhattan Project to restart mining and smelting even if it were to all shut down in the US.
And . . . who cares if they return? Let China do all the nasty, polluting work over there and sell us the refined product at a discount.
So does the US. So does China.
What do you think China does with those dollars they get? Hint: Its not 'put them under the mattress".
"Let China do all the nasty, polluting work over there..."
What? And let China have all those wonderful manufacturing jobs? /sarc
While it wouldn't take the effort of the Manhattan Project, it's not a zero effort thing to recover the ability to do it. Not least of which is losing the people who already know how to do it and recreating the machinery from memory or poor documentation.
In the long run it really is better to keep the capability, but then I'm in favor of the nation state model.
It's great to get all that cheap raw material or manufactured goods until the seller decides that they'd rather not sell us that stuff anymore.
Then what?
How long will we be given to get these displaced industries up and running here again?
Retaining the capability could be called a national defense issue and subsidized, as it certainly is in places undercutting the prices on our domestic production.
Never mind the millstone around our necks from useless regulations... Those alone would make our domestic product more expensive even if wages were the same.
Never mind that we care if we pollute where we live, and skipping pollution controls makes competitor's energy and production cheaper. We don't even escape that pollution in the case of China as it blows across the Pacific and ends up in super eco-green California.
Sooner or later we're going to be confronted with the reality that if you don't make anything you can't sell anything. If you can't sell anything you can't create wealth. If all you do is spend wealth, even if you spend it slowly, you eventually run out.
Then what?
The interesting thing about claims that the Chinese are selling us things at below their real cost of production is that non of the people making those claims even attempts to offer any evidence as to what their real costs of production are.
Agammamom: And . . . who cares if they return?
Having captured the industry, prices return, then they move on to the next industry.
Steel, among others.
"Sooner or later we're going to be confronted with the reality that if you don't make anything you can't sell anything."
The US makes plenty of stuff. Manufacturing is the largest sector of the US economy and is at a near all-time high. So- what's the problem, again?
The US steel industry collapsed and has never returned? From the American Iron and Steel Institute:
In the week ending September 3, 2016, domestic raw steel production was 1,656,000 net tons while the capability utilization rate was 70.8 percent.
Doesn't look collapsed to me. Got another example?
I've got several years of retail experience under my belt, moron.
Too bad I've said nothing about retail. Oops.
There's a meme I wish I could remember the link to, I'd just post it and be done with you. But as it goes, you're doing nothing more than forcing yourself into a transaction you have no right to be involved in. Where two people would otherwise trade labor for wealth with absolutely no violence involved, you're putting yourself in the middle and forcing both the laborer and owner to agree to your terms. All because you don't want to let go of your welfare state, and to add salt to the wound you have the nerve to dare tell them it's for their own good.
All it takes is setting an example. I refuse to buy much of anything manufactured in America, or in Europe at that. Why? Because at the end of the day, instead of people trying to make our world more business-friendly or walking the talk, all that's happening is people complaining to their legislators to create even bigger welfare states or writing bullshit on the internet about how life ain't fair. I'm about ready to exile myself from the west, because no one who wants to "make America great"/"bring jobs to America" is actually willing to forego the costs to do so. My only obligation as a customer is the efficiency of the product itself; you want my business, work for it.
No, you just ad hominemed me and issued typical Libertarian bloviation. It's a good thing you're done with me so I don't have to hear any more of you.
The sad part is that Snow Crash is no longer as much of a joke as it used to be.
"I've worked under the table my entire life"
Fascinating that you'll so readily admit to criminal behavior and then lecture the rest of us on morality.
Obvious troll is obvious.
Fascinating that someone who bases his morals on man-made laws thinks he can claim others are acting immoral. You must really be having a moral dilemma when your own kid asks for money for doing a job, since after all any payment for goods rendered without filing is illegal, and therefore immoral by your view.
Not trolling, unfortunate for you.
Obvious troll is soooooooo obvious...
You need to quit with your self-projections. They're not healthy, for you or anyone else.
It's not just the electricity. Every step in aluminum production has high environmental costs, unless they are mitigated expensively. Here, they must be, by laws that are rigorously (and sometimes insanely) enforced by the EPA and state agencies. In China, there may be laws against pollution, but it's much cheaper to bribe a few officials than to control the pollution...
1. Open pit mining of ore. Regulations here require mining companies to attempt to control run-off from the pits and the heaps of overburden soil and rocks, and to fill the hole back up and restore the land to it's original condition when done. Enforcement isn't perfect - and it's not always possible to prevent seepage into ground water or fully restore the land - but it is necessary to spend a great deal on trying.
2. The ore usually requires refining (separating the rocks from the Al2O3 ore). This produces huge tailing heaps, which have to be dealt similarly to the overburden.
3, Electrolysis: It's not just the 15KW/hr of electricity per Kg of Al. The main process used is to dissolve the Al2O3 in molten flouride salts. That salt bath is quite toxic (like most fluorine compounds). I'd guess that Chinese producers take reasonable precautions against leaks and re-use around 99% of the bath just to save money on materials, but usually there are no consequences when small amounts escape or are dumped and poison the land around the plant. American producers must have multiple levels of protection against leaks and either re-use 100% or treat waste materials until they are non-toxic under any circumstances.
So the Chinese companies, including the power plants, have an "unfair advantage" in that they don't need to spend nearly as much on not poisoning their neighbors. It's not unreasonable to prefer paying more for the same product from plants that don't poison their neighbors (and possibly us, too, depending on how much the pollution spreads). OTOH, imposing that moral value on others by force is dubious - and far more dubious when it's accomplished by laws passed by an assemblage of smart people working together to be stupid (Congress), and interpreted by bureaucracies that are either power-mad (the EPA) or interested mainly in keeping their job easy but vitally necessary (customs).