Top executives from the U.S. aluminum industry say substituting quotas for import tariffs will squeeze supply of the metal, making it “harder, even impossible” for American companies to grow and invest.
The United States has been pushing Canada and Mexico to accept quotas in exchange for lifting the tariffs on steel and aluminum imposed by U.S. President Donald Trump last year.
That strategy — which Mexico City and Ottawa have resisted — risks creating shortages that disrupt supply chains and tie up funds that would otherwise be used for business investment, said Jean-Marc Germain, chief executive of Amsterdam-based Constellium N.V. which operates a number of facilities in the U.S.
“We know aluminum regularly crosses the border multiple times before reaching an end user as a finished product,” Germain told reporters following a spring meeting of the U.S. Aluminum Association, representing aluminum firms including Alcoa, JW Aluminum, and Scepter Inc. “Under a hard quota system, that metal could end up stuck at one side of the border after the quota has been filled.”
Speaking on behalf of the association, Germain called on Trump to scrap the tariffs, arguing they represent “bad policy” and have done little to stop the “trade distorting behaviour” of China while increasing costs for downstream producers who represent 97 per cent of the jobs in the sector.
A recent study by the Organisation for Economic Co-operation and Development found China provided its aluminum industry with subsidies in excess of US$70 billion between 2013 and 2017 — 85 per cent of which went to five firms. The overcapacity has been blamed for depressing prices and pulling production away from U.S. producers.
“The real issue on the world stage with aluminum and fair competition is China,” Germain said. “The rest of the world is by and large playing by the rules. … That’s why we’re saying a targeted action against those players in China who don’t play by the global rules is the solution to our problems. “
While antidumping and countervailing duties — which target unfair trade in specific products from individual countries — have proven successful in thwarting dumped goods, the same cannot be said of the tariffs, the association maintains. China’s primary aluminum capacity rose by nearly 6 per cent in 2018 despite the levies and its production rose in the second quarter of 2018, around the time they were applied. Meantime, the levies boosted the cost of aluminum from Canada, the largest supplier to the U.S. market.
“What you have in the antidumping and countervailing duty tariffs is an ability to take that targeted approach versus the section 232 which is a much more blanket or broad approach and I think that’s where we would draw the distinction,” said Michelle O’Neill, senior vice president, global government affairs and sustainability for Alcoa.
The stated goal of the U.S. tariffs — issued on national security grounds under Section 232 of the 1962 Trade Expansion Act — is to increase America’s self sufficiency in steel and aluminum production by lifting capacity utilization above 80 per cent in both industries. Though the steel industry has now surpassed that marker, U.S. aluminum smelters are unlikely to move above 60 per cent this year, said John Mothersole, director of pricing and purchasing at IHS Markit in Washington.
By contrast, Canadian aluminum producers who supply 47 per cent of the metal consumed in the United States are currently operating at above 90 per cent capacity, despite the tariffs.
Analysts say investment south of the border remains hindered by the high cost of operating in U.S. currency and the challenges of competing with Quebec producers, who benefit from access to cheap hydroelectricity.
“The U.S. primary producers have lifted production somewhat but not as much as the administration would have liked,” Mothersole said, adding that U.S. aluminum prices are now the highest in the world. “If you make metal in the U.S., the tariffs can be good I guess but if you make things out of metal, not so much.”
The White House is facing mounting pressure from business groups and senior Republicans and Democrats to drop the tariffs before Congress considers ratification of the new NAFTA. Canada and Mexico have also said they will not ratify the deal with the tariffs in place.
“We remain very much opposed to quotas and tariffs because all that would do is hinder our growth by capping how much we can export to the U.S. which is our natural market,” said Jean Simard, president of the Aluminum Association of Canada. “Quotas micromanage trade and we won’t support that.”
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