Trump must crack down on Chinese aluminum spreading across globe

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This month, President Trump announced a new U.S. national security strategy referring to China as one of the “rival powers” that seek to “challenge American influence, values and wealth.” To ensure the continued viability of the U.S. aluminum industry, the Trump administration in April launched the Section 232 national security investigation of aluminum imports. Since 2009, more than 4,000 American aluminum workers have lost their jobs due to foreign governments subsidizing their domestic aluminum industries.

In the early 2000s, the Chinese government recognized aluminum’s importance to strategic and high value downstream manufacturing and embarked on a state-led industry policy expansion. The results are astounding. Through the illegal subsidization of its primary aluminum producers, China now accounts for approximately 56 percent of global smelting capacity, or nearly 31 million tons per year. Prices collapsed as Chinese capacity ballooned.

{mosads}What began as a China problem, however, now has global implications. China’s state-driven expansion has reshaped the global aluminum industry in ominous ways for proponents of fair trade and competitive free markets. Governments elsewhere have stepped in to compete with the Chinese government’s industrial might by subsidizing their own state-owned aluminum producers. The distortions originating in the Chinese aluminum industry have been felt disproportionately by privately owned smelters as a result.

Unlike in other industries, the majority of global primary aluminum production occurs at smelters that are at least partially controlled by state-directed enterprises. According to CRU Group, while nearly 60 percent of Chinese capacity is state-owned, effectively all of Middle East capacity is state-owned, and governments in this region also bestow lavish energy subsidies on local producers, leading to significant capacity expansions. State-owned smelters in Asian countries outside of China account for nearly 60 percent of capacity in that region. Furthermore, in both Africa and South America, the state accounts for more than 40 percent of production.

What’s happening is clear. Around the world, governments are stepping in to support their domestic industries in competition with other governments. This is a vicious cycle with dramatic implications. Since 2009, during a period in which global aluminum prices have been under significant pressure, state-owned smelters in China, the Middle East and in other Asian countries added nearly 17 million tonnes of new capacity. These state-owned smelters account for an ever-increasing share of U.S. aluminum imports.

By contrast, private smelters operating under market-based constraints without extraordinary state support in the United States, Europe and elsewhere, have been forced to shut down, closing more than 3 million tons of capacity over the same period. The majority of these closures have been in the United States and have cost more than 4,000 hardworking and talented employees their good paying jobs.

The good news is that the United States, the European Union and Japan have recognized that this is not how the system is supposed to work. At the World Trade Organization Ministerial Conference in Buenos Aires this month, the three issued a joint statement calling for enhanced trilateral cooperation to address a “critical concern” in the global economy.

They “shared the view that severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies and state-owned enterprises…are serious concerns for the proper functioning of international trade.”

The bad news is that this type of action moves slowly. With the role of the state expanding throughout the global aluminum industry, the U.S. primary aluminum industry will likely not survive long enough to see the benefits of a coordinated multinational solution. A domestic response is needed now to arrest the adverse effects of the state-directed excess capacity crisis.

The Section 232 national security investigation that President Trump launched is a critical opportunity to achieve that solution and save what is left of an industry that is vital to U.S. national security. The administration should move swiftly to bring the investigation to a conclusion and provide broad and effective relief to ensure that the U.S. primary aluminum industry will continue to play its vital role in the U.S. economy and national security.

Mike Bless is president and chief executive officer of Century Aluminum.

Tags Aluminum China Donald Trump Donald Trump Industry Trade United States White House

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