Officials from the China Nonferrous Metals Industry Association (CNIA) journeyed to Washington, D.C. recently to testify before the US International Trade Commission (ITC). The representatives spoke to the positives that they say the Middle Kingdom’s aluminum industry has brought to the wider global economy, which, they say, has risen with the overall rise in the tide of aluminum use worldwide. The CNIA went on to say that consumption in China is expected to continue to surge as manufacturers find more uses for the strong but lightweight metal in domestic applications.
However, CNIA’s testimony belies the myriad of problems with China’s aluminum industry. Prime among them, at least for American aluminum producers, is the fact that China’s incredible glut of production has sunk the price of the commodity to levels that make lucrative production next to impossible in the States. Once worth $152 billion per year to the American economy, the domestic aluminum industry has found itself hemorrhaging jobs, closing facilities one after another, and watching assets divided among creditors in the nation’s bankruptcy courts.
Although manufacturers and unions alike have cried out to D.C. for protectionist measures, the calls have largely fallen on deaf ears to this point. The late hearings are part of an investigation launched by the Commerce Department over anti-competitive actions by China, but apart from making a recommendation, the ITC has no power other than the weight of its opinion.
It is not likely that protectionist measures, which are difficult to put into place in the WTO era and are likely counterproductive in any case, will come close to addressing the issue anyway. The real problem, according to most experts, are the “creative” business practices engaged in by Chinese firms.
Among the most creative of these practices is the shipment of partially-formed aluminum out of China and into a third country, where the value-added material is melted back down into ingots and sold as raw aluminum. This practice of transshipment takes advantage of lower tariffs for raw aluminum as well as allowing the producer to qualify for favorable tax treatment on value-added products. This is a practice that has allegedly been perfected by China Zhongwang, one of the largest producers of the metal. An accidental discovery of around one million metric tons of aluminum (about six percent of the world’s total inventory) at a plant in Mexico allegedly with ties to Zhongwang shocked the industry into awareness of the practice, while a subsequent report by shadowy short seller Dupré Analytics brought the details of the alleged practice into sharp focus.
In addition to its alleged status as a past master at not-so-ethical business practices, Chinese aluminum producers have been fueling the mountains of metallic oversupply via carbon-belching power plants. Despite talking a good game on clamping down on the environmental abuse, Chinese authorities have done precious little to curb the degradation. Local authorities have various tools of enforcement at their disposal, including the right to seal off the premises of and destroy equipment belonging to repeat and significant polluting offenders. However, due to local pressures, these powers are rarely invoked, leading to pollution levels between egregious and staggering – according to reports, more than sixty smelters in China are in flagrant violation of environmental standards by releasing between 10.3 mg/m3 and 31 mg/m3 of particulate matter, which is enough to cause haze and make human respiration difficult.
How then should the United States hope to become competitive anew in the global market? On the domestic front Congress should broaden the application of the Clean Energy Incentive Program. This program offers matching funds and Emission Rate Credits (ERCs) to states that convert sooner than required to zero-emission power-generation methods. Widening this program to America’s embattled aluminum producers incentivizes those producers to operate in a more sustainable manner while enhancing competitiveness as well. In addition, the United States should shore up trade rules in such a way that it is easier to identify the actual origin of incoming aluminum. As pointed out in The Aluminum Association’s testimony to the ITC, cracking down on misclassification of aluminum products and putting a stop to transshipment would go a long way to maintaining the integrity of both the domestic and global aluminum markets.
Whatever the course the United States government chooses to sail, it is clear to even the most casual observer that standing pat is no longer an option if the U.S. is to have even the shadow of a vibrant and productive aluminum market. The steady gnawing of China’s unethical business practices on America’s aluminum industry has gone on too long for the government to contemplate any but the swiftest and most effective action on its behalf.
Talley a freelance consultant based out of New York, involved in the development of copper mines in South Africa.
The views expressed by authors are their own and not the views of The Hill.