One and a half years ago, the U.S. primary aluminum industry was hanging on by a thread. Between 2010 and 2017, 18 of 23 domestic aluminum smelters shut down, eliminating roughly 13,000 good domestic jobs. In 2016, there were three alumina refineries supplying U.S. smelters; by 2017, only one remained in operation.1 In 2017 the Commerce Department launched Section 232 investigations to determine whether aluminum (and steel) imports were a threat to national security.
This report demonstrates that after the Section 232 tariffs were imposed on aluminum (and steel) on March 8, 2018, the domestic producers of both primary aluminum and downstream aluminum products have made commitments to create thousands of jobs, invest billions of dollars in aluminum production, and substantially increase domestic production. Specifically:
- U.S. primary aluminum production is projected to increase by 67 percent (500,000 tons per year) between 2017 and the end of 2018. Three smelters are being restarted, and another has announced a capacity expansion. Seven smelters in total will be in operation by the end of 2018. These restart and expansion projects will create over 1,000 new jobs and generate over $100 million in new investment.
- Since Section 232 tariffs were imposed, 22 new and expansion projects have been announced in downstream aluminum industries producing extruded (rod and bar, pipe and tube, and extruded shapes) and rolled (sheet and plate) products. These new and expanded facilities will employ over 2,000 additional workers, generate $3.3 billion in new investments, and add nearly 1,000,000 tons of annual rolling and extrusion capacity to the downstream, domestic aluminum industry.
- In the year-to-date period of January through October 2018 (compared with the same period in 2017), shipments of all extruded products are up 6.3 percent (279.8 million pounds), and total sheet and plate shipments have increased by 4.6 percent (336.4 million pounds). Those figures are for total North American shipments (including the United States and Canada). Industrial production data show that these trends are even stronger in the United States.
- The Federal Reserve’s industrial production data provide estimates of real output, based on measures of physical output, or (where output data are not available), total production-worker hours, by industry. U.S. output of raw alumina and refined & processed aluminum increased 9.8 percent between February 2018 (before tariffs were imposed) and October 2018 (data are for the four-digit North American Industry Classification—NAICS—code 3313). Output of rolled and extruded aluminum products increased 9.1 percent from February to September 2018. Therefore, domestic (U.S.) producers appeared to outperform continental production for the U.S. and Canada, referred to above.
- To date (February through October 2018), U.S. employment in the aluminum industries (primary and downstream) has increased slightly (by 300 jobs) since the tariffs were imposed. Aluminum production is highly capital-intensive, and restarting closed facilities is a costly and time-consuming process. Planned restarts and capacity expansions in both primary aluminum and downstream rolling and extruding mills will create more than 3,000 jobs, as shown below.
When the tariffs on steel and aluminum imports were imposed, critics claimed that while they would save thousands of jobs in primary metals industries, hundreds of thousands of jobs would be eliminated in the rest of the economy. These critics referenced a 2018 study by the Trade Partnership.3 I said at the time that the Trade Partnership forecast was wildly exaggerated and that the impacts of the tariffs would be quite minor.4 This report demonstrates that, to date, there is no evidence of the negative downstream effects claimed in the Trade Partnership study to be found anywhere in the U.S. economy. In total, the U.S. manufacturing sector has added approximately 176,000 jobs (including 2,700 in iron and steel production) since February 2018, the month before the tariffs took effect.5 In the rest of the economy, approximately 1.4 million jobs have been created in this same period. Looking more specifically at the industries aluminum producers supply, there remains no evidence that the imposition of tariffs on aluminum (or steel) have had the kinds of negative employment impacts—in downstream manufacturing or other parts of the economy—that were predicted by critics of aluminum tariffs.
In the spring of 2017, when the U.S. Department of Commerce and the president were considering action in a Section 232 National Security Investigation into the threats posed by steel and aluminum imports, the entire domestic aluminum industry was hanging on by a thread. The threat was, and continues to be, principally driven by the growth of excess capacity and overproduction in China and elsewhere. Chinese primary aluminum production capacity increased nearly 1,500 percent from 2000 to 2017, and China is responsible for 82 percent of the total increase in global aluminum production capacity between 2000 and 2017.6 This growth has been fueled by massive Chinese government subsidies and other market-distorting practices. As the Chinese expansion exploded, primary aluminum production in other regions, such as India and the Persian Gulf States, also increased through similar types of subsidization at a time when smelters in the United States were being idled.
The continued expansion and maintenance of excess capacity both inside and outside of China has suppressed global aluminum prices, transmitting injury directly to domestic aluminum producers in the United States. Aluminum is a global commodity, and prices are primarily driven by total global supply and demand, regardless of where the aluminum is produced, sold, or stored. The U.S. aluminum market effectively imports the adverse price and volume effects of China and others’ excess capacity and production via changes in London Metal Exchange (LME) prices.
Collapsing prices have decimated U.S. primary aluminum production, capacity, and employment. The LME market price of aluminum fell 39 percent between 2007 and 2016. In an industry with high fixed costs, most domestic producers have not survived this prolonged, steady price collapse. Between 2000 and 2017, 18 of 23 domestic smelters shut down and more than 13,000 good domestic production jobs disappeared.7
Today, after the imposition of tariffs of only 10 percent, domestic production in both the primary aluminum (including both alumina refining and secondary smelting and alloying of aluminum) and downstream aluminum rolling and extruding industries is up; these producers are hiring and expanding, adding capacity, making large investments, and increasing production, as is shown in this report.
These outcomes belie claims by critics, including widely quoted economists from the Trade Partnership firm,8 along with a wide array of pundits, journalists, and representatives of many firms in downstream industries, who argued that the Section 232 tariffs would have a devastating negative impact on wide range of domestic industries. For example, according to Bloomberg, Ford Motor Co. “began the year by warning that rising costs for raw materials like steel and aluminum, coupled with unfavorable exchange rates, would add $1.6 billion to its costs this year.9 Of course, increases in the real value of the dollar, which has gained 5.4 percent this year, raise the cost of everything that domestic automobile manufacturers import from the rest of the world (including finished vehicles and parts), and changes in the cost of metals is a tiny fraction of their overall costs.10 Nonetheless, data reviewed here demonstrate that the steel and aluminum tariffs have had no significant, industry-specific or economywide negative impacts on employment or output in U.S. manufacturing or other domestic industries.
Positive impacts of the aluminum tariffs on the aluminum industries
U.S. primary aluminum production will increase by 67 percent (500,000 tons per year) between 2017 and the end of 2018.11 Research conducted for this report reveals that three smelters are being restarted and another has announced a capacity expansion. Seven smelters in total will be in operation by the end of 2018.12 These restart and expansion projects will create over 1,000 new jobs and generate over $100 million in new investment, as shown below.
Table 1 summarizes the specific data on the four significant U.S. projects (the one expansion and three restarts of aluminum smelting and casting operations). It shows that these investments will increase domestic capacity by 663,000 tons, at a cost of at least $137 million, and they will ultimately create at least 1,075 new jobs.