As states locked down large parts of the economy this spring amid COVID-19 outbreaks, the Department of Homeland Security was quick to designate aluminum production, fabrication and recycling as “critical manufacturing.”
While you may not always think of it, the U.S. aluminum industry makes many products that are essential during a public health crisis — including medical supplies, building materials, transportation equipment and food and beverage packaging.
But a poorly designed system at the Department of Commerce is making things harder, not easier, for U.S. aluminum companies and workers.
In March 2018, President Donald Trump implemented a 10 percent tariff on most aluminum and semi-finished aluminum products entering the United States. At the time, the administration said that these national security-focused “Section 232” tariffs would have “major, positive effects on … aluminum workers and jobs.” The program was meant to help an industry that has been battered for years by Chinese industrial policies that drive massive amounts of subsidized metal overcapacity.
The Trump administration wisely improved the program last year by exempting North American aluminum from the tariffs — opening up a much-needed source of supply to U.S. aluminum firms.
Still, major problems remain.
Instead of bolstering the U.S. aluminum industry, the Section 232 program’s implementation is directly harming domestic aluminum workers while benefiting foreign metal producers, including China. The system is forcing U.S. aluminum companies into conflict with customers and suppliers, adding layers of bureaucratic burden and providing a price advantage to foreign aluminum manufacturers.
Importers can request an “exclusion” from paying the Section 232 tariffs on specific imported aluminum products. In some cases, these requests are reasonable and appropriate —when domestic producers do not have the capability to make the product in question. But the system is rife with abuse.
Exclusions have been granted for huge volumes of aluminum products with apparently no consideration of market realities, especially for flat-rolled products like sheet to make aluminum cans, foil for packaging and plate for industrial use.
So far, the Commerce Department has granted tariff exclusions on aluminum products covering more than 22 billion pounds of aluminum, including more than 4 billion pounds from China, the most granted for any single country. To cite one particularly egregious example, the department has granted around 5 billion pounds of aluminum can sheet exclusions this year alone — 30 percent larger than the size of the entire U.S. can sheet market.
Tariff exclusions incentivize many companies to import aluminum from foreign sources at below domestic prices as a first course of action, or to use their exclusions as leverage to negotiate lower prices from U.S. producers.
Under these circumstances, why would any company buy aluminum rolled by workers in Alabama, Indiana, Kentucky or Tennessee if they can stock up on a cheaper option from a foreign supplier?
This dynamic is hurting aluminum workers today. Even before the pandemic, domestic aluminum demand was down more than 6 percent year-over-year — the first drop in nearly a decade — despite imports more than doubling in certain aluminum markets over the past two years.
As Commerce Secretary Wilbur Ross noted last month, his department “is continually looking for ways to improve the exclusion process for Section 232 tariffs and quotas.” And a recently opened public comment process gives the department a golden opportunity to make much-needed reforms.
Here are a few to consider.
1. All exclusion requests should be subject to a comprehensive analysis to ensure that volumes requested align with historic import volumes and market size. This would limit the program’s distortive impact.
2. The system should presume denial to products made in non-market economy countries like China and ensure that only companies that actually manufacture or consume aluminum products can request exclusions. Doing so would discourage commodity brokers from taking advantage of the system to stock up on lower-priced foreign aluminum.
3. The Commerce Department should limit exclusion requests to products the domestic industry is truly unable to make. Granting an import exclusion for products that are or can be made in the U.S., like foil and can sheet, undermines the purpose of the Section 232 program and advantages foreign aluminum producers.
4. The department should implement various technical fixes like improving the program’s web portal and increasing reporting and analysis. This will lead to a more open and streamlined process to allow stakeholders to better identify abuse of the system.
These simple reforms will make the Section 232 program more consistent with President Trump’s goal of supporting a healthy U.S. aluminum industry, not economic rivals like China.
Now more than ever, in the era of COVID-19, Americans of all political stripes understand the need to build and bolster strong domestic manufacturing supply chains. Reforming the Section 232 product exclusion system is one way to do just that.
Tom Dobbins is the president and CEO of the Aluminum Association, the leading trade association for U.S. aluminum, representing more than 120 companies across the industry.