The global price of aluminum fell below $1500 per metric ton by the end of 2015. By June 2017, it had risen to $1885 per metric ton. This source suggests that this price is even higher. So what happened yesterday?:
The stock market dip reflects the enormous impact that a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum will have on the economy. That’s because so many American industries need steel and aluminum: They’re used to build cars, skyscrapers, roads, bridges, washing machines, refrigerators, and a whole host of other products. More expensive steel and aluminum means higher costs for the American businesses that make these products — higher costs that will likely get passed on to consumers. Trade groups and businesses didn’t wait long to slam the president’s decision. Some of the country’s most influential industry groups warned that the tariffs would hurt more than a company’s bottom line
C’mon man! Aren’t there winners from these tariffs?
There are a handful of winners from the proposed tariffs: the companies that produce steel and aluminum in the United States. The CEOs of the big American steel companies were invited to the White House for Trump’s big announcement. David Burritt, the CEO of US Steel, was thrilled. “This is vital to the interests of the United States,” he said at the White House after the announcement, according to a pool report. “This is our moment, and it’s really important that we get this right.” As the stock market slid, share prices for his company — and other steel companies — jumped.
Forget steel – what about Alcoa! Alcoa has seen a recent slide in its revenues and profitability so we will look at certain information from their 10-K filing shortly. But first let’s check with Census to see how much bauxite and aluminum we imported last year. End use code 14200 shows that total imports were $16.255 billion but only $1.267 billion was from China. Yes boys and girls it was those socialists in Canada that sold us $6.978 billion of these products in 2017. That damn NAFTA! I saw some pro-Trump cheerleader commenting on another economist blog that we had to protect our U.S. smelters from foreign competition, which brings me to Alcoa’s most recent 10-K filing: From 2016 to 2017, their sales picked up and they return to profitability. But the details on their smelters is interesting:
In March 2015, management initiated a 12-month review of 500 kmt in smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review was part of management’s target to lower Alcoa Corporation’s smelting operations on the global aluminum cost curve to the 38th percentile (currently 38th) by the end of 2016. In summary, under this review, management approved the curtailment of 447 kmt-per-year and the closure of 269 kmt-per-year. The following is a description of each action. At the same time this review was initiated, management decided to curtail the remaining capacity (74 kmt-per-year) at the São Luís smelter in Brazil; this action was completed in April 2015. In 2013 and 2014 combined, Alcoa Corporation curtailed capacity of 194 kmt-per-year at the São Luís smelter under a prior management review. Additionally, in November 2015, management decided to curtail the remaining capacity at the Intalco (230 kmt-per-year) and Wenatchee (143 kmt-per-year) smelters, both in Washington. These two smelters previously had curtailed capacity of 90 kmt-per-year combined. The curtailment of the remaining capacity at Wenatchee was completed by the end of December 2015 and the curtailment of the remaining capacity at Intalco was expected to be completed by the end of June 2016; however, in May 2016, Alcoa Corporation reached agreement on a new power contract that will help improve the competitiveness of the smelter, resulting in the termination of the planned curtailment. Furthermore, in December 2015, management approved the permanent closure of the Warrick smelter (269 kmt-per-year). This decision was made as this smelter was no longer competitive in light of prevailing market conditions for the price of aluminum at that time. The closure of the Warrick smelter was completed by the end of March 2016.
Their most recent 10-K lists 16 smelters with only 4 in the U.S. Canada and Spain have 3 each. Brazil and Norway have 2 each. Alcoa also has smelters in Australia and Iceland. If Alcoa’s sales are enhanced by this tariff – it is not clear that they will not outsource the smelter operations to Iceland:
Alcoa, formerly the Aluminum Company of America, and another American company, Century Aluminum, have opened factories like this in Iceland, and closed factories in the United States, for a simple reason: Electricity is much cheaper here.
Century Aluminum’s share price also rose. Their 10-K also notes their smelters:
We operate three U.S. aluminum smelters, in Hawesville, Kentucky (“Hawesville”), Robards, Kentucky (“Sebree”) and Goose Creek, South Carolina (“Mt. Holly”), and one aluminum smelter in Grundartangi, Iceland (“Grundartangi”).
They have constructed another facility in Iceland known as the Helguvik project, which has struggled in a competitive aluminum market. I’m sure Century Aluminum is delighted with these tariffs. After all – Make Iceland Great Again!
Trump wants to impose tariffs on cars from Europe:
Did he read my post on the Effective Rate of Protection?
Are you implying that the guy in the White House that calls himself the maker of the great deal did not make a great deal? I am shocked! I tell you utterly shocked!
Covered under the Forrest Gump clause “Stupid is as Stupid does.”
I’m an angry bear myself, but how do comment “C’mon man! Aren’t there winners from these tariffs?” without even mentioning that steel workers are beneficiaries. If you think that “steel companies” = “steel workers,” you are living in a bubble of your own making. Steel companies didn’t vote for Trump; steel workers did. Though I am not a steel worker, nor have I ever met one, I don’t blame them one bit.
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I suggest you wait and see how this plays out. I would bet the benefit to the steel workers turns out to be all smoke and mirrors.
When I worked in a sawmill and jobs were lost to automation and selling raw logs to Japan, the owners blamed the job loss on the spotted owl.
And that doesn’t even address the low wages made possible by the reserve army of the unemployed… engineered by the owners in cooperation with the vast right wing conspiracy.
@ Coberly, I would note that in this regard, the Democratic Party elites were in full co-conspiracy with the right-wingers.
I think you are absolutely right about that.
Maynard & Coberly
US foreign trade policy has always been a net benefit to the US. The trade deficit pales in comparison to the sum of displaced wage earners reductions in income plus consumers price advantage via foreign competition with domestic producers. It isn’t even remotely comparable.
The downsides has been displaced wage employment from Goods production higher wages to Services lower wages. But you’ll note that employment (EPOP = Employment Population Ratio) increased after WWII and end of 1930’s recession brought on in large part by Coolidge’s protectionist trade policies.
Employment (EPOP) only began to decline after 1980 — no little part of which was due to the massive shift in marginal tax rates & huge reductions in unearned income taxes under Reagan. This was far in advance (14 years or so) of NAFTA in 1994. The rest due to US capital roi being better served by foreign investments and importing the lower cost goods.
You forget Japanese and European Steel took over US steel producers in the 1970’s because they had invested in new steel production plants using newer more productive methods, while it didn’t benefit US producers to tear down their older tech steel plants to compete.
You forget that Japanese motorcycles were far superior to the US’s dominant monopoly (Harley-Davidson) in the 1960’s, smaller, lighter, and far lower costs. Harley didn’t even try to follow suit. The English’s imports (Triumph & BSA) had already made a huge dent in Harley. If you din’t want a “hog” you bought a Triumph or BS before Japan’s motorcycles entered the scene.at yet lower prices and better quality (e.g. reliability).
You forget that Honda, then Toyota automobiles were initially the most fuel efficient, plus better reliability, though smaller than our gas-guzzling V-8s and took a huge share of Ford’s, Chrysler’s & GM’s offerings… which remained gas-guzzling V-8’s for the most part augmented by some really poor excuses for model’s competing with Japan’s imports.
You forget that Chrysler invested in 15% of Mitsubishi in 1970 to get into the small car lower cost market. By 1982 they were importing 110k Mitsubishi’s per year.
You forget that Chrysler received their first bailout when it asked for and received a congressional $1.5 billion in loan guarantees in 1979 to avoid bankruptcy and consequent job losses. The pubic received a profit on this guaranteed loan package of $350 million in due course.
And Coberly, you forget that exporting logs and importing 2×4’s from them using automated saw-mills drastically reduced construction lumber costs, thus housing costs, and thus increased residential construction and construction labor… far outweighing western mills job losses with higher paid skilled labor. You should be asking why the western mills hadn’t invested in more capital intensive automation to compete… they were well aware of automation methods being implemented in China. And I’m sure union labor was vehemently opposed to that but guess what? Money talks, everybody else walks and Reagan’s admin helped Union’s demise move right along.. The same thing happened in mining but the United Mine Workers union saved more jobs than they would have otherwise had they not made a deal to allow mining automation.
The US isn’t a closed economy. You forget that.
Correction. I meant mfg’ing employment, NOT EPOP.
“But you’ll note that employment (EPOP = Employment Population Ratio) increased after WWII and end of 1930’s recession brought on in large part by Coolidge’s protectionist trade policies.
Employment (EPOP) only began to decline after 1980 —…”
You seem to forget that we have elections. The conditions you describe were the direct result of policy choices. Brexit and the election of Trump are rejections of those policies.
actually, I didn’t forget any of that.
you should try reading what i said instead of what you think i said.
I did try to follow your post, but I guess I’m not sure about your position. I took you to mean that it was the laws of global economics/poor quality American products rather than the trade policies that are mostly responsible for the decline of American manufacturing. I think it’s a lot of both. My point is just that a lot of people in the US, UK and elsewhere have had enough with the globalist agenda regardless.
Your point is just that a lot of people in the US, UK and elsewhere have had enough with the globalist agenda regardless.”
Yes, but what is their opposition supposed to do form then? And Yes, a lot of people also opposed abolition of slavery. Which made things even worse for them in the end..
Protectionist trade policies will also make things worse for them. But they are inclined to believe the propaganda of the nationalists, far right’s agenda because it appeals to their emotions to “Make America Great Again” So they are gullible is the bottom line isn’t it? But their gullibility is taken advantage of by those that would actually benefit from protectionism — employers pocket-books.
Thank you for explaining that. I think where their opposition might work for them is the threat to “blow up the system” (ie, Brexit; Trump) unless more of the benefits of global trade accrue to them. Not much else has worked them over the last 35 years.
I can’t disagree that “not much else has worked for them” as the divergence of median income growth from GDP and productivity growth clearly attests.
As to tearing down the system the fact that Bannnon was one of Trump’s real advisors early on and through his first year on the job is, to me at least, decent evidence that this was Trump’s basic (but unstated) appeal… “anti-establishment politics” to many people meant discarding gov’t norms — things like “clear the swamp” and blaming NAFTA and China, immigrant from south of the border have a huge appeal to overturn the entire system. Not that the appeal of doing something about them per Trump’s solutions or implied solutions would actually fix anything in reality, but it certainly struck the heart-strings (gut strings) of emotions.
What’s interesting to me, and a lesson in political methods, is that the establishment GOP remains in control by using Trump’s anti-establishment appeal to people. The establishment conservative movement get’s a huge boost in their agenda by using Trump’s anti-establishment appeal as their intermediary. This is a very clever move by the conservative establishment and it’s paying off handsomely.
(the Trump protectionist trade rhetoric is the only major exception thus far. Trump will find, if he didn’t already know it before his announcement (& I’m certain he did) that he can use this to rally the base and anti-establishment crowd’s emotions while in the end being pulled back by congress & or the courts & or the WTO sanctions to a tiny and worthless increase in tariffs, or none at all.
On the Korean washing machines/dryers tariffs, I’m relatively sure there’s a quid-pro quo going on behind the scenes which will provide Korea with more imports of higher priced more profitable products. Meanwhile Korea will file a complaint with the WTO to give the appearance of official complaint…. which will end up being appealed in the WTO rules which give he WTO 18 months to make a final decision — and in 18 months it won’t make the front pages or Trump’s tweets anyway. Trump already knows this though — Cohen told him. Off the record House & Senate leadership told him (before his announcement) and Session’s told him for sure. So this is all hot air to keep the anti-establishment crowd riled up.
Strike Sessions — I meant Sec State Tillerson certainly told him for sure.