China / National Security / Politics / Trade

Hold My Beer: Aluminum and National Security

Background

Beer is good , beer is american. To protect the interests of beer drinkers and beer producers everywhere, primary aluminum must be excluded from the Section 232 investigation, otherwise it risks endangering the business of local brewers, packagers, and raises prices for consumers.

On April 26, 2017 Department of Commerce Secretary, Wilbur Ross, initiated a Section 232 investigation into low priced imported aluminum as a potential threat to U.S. national security. This investigation followed a memorandum by President Trump encouraging the investigation and expressing concern over domestic aluminum production and U.S. performance in the global aluminum market[i]. A public hearing was held on June 23rd to address the Section 232 investigation and the ramifications of changes to aluminum trade structure and policy. It still remains unclear as to whether or not the increase in aluminum imports poses a serious security threat, however the investigation could hurt an industry that all americans want to protect– Beer.

The goal of a Section 232 investigation is to determine the effect that certain imports have or may have on national security. The Trade Expansion Act of 1962, grants the Secretary of Commerce the authority to launch this kind of investigation. Once initiated the Secretary of Commerce notifies and continues to collaborate with the Secretary of Defense concerning policy methods and to address any questions that may arise. In the event of an investigation, the Secretary of Commerce has a 270 day window to conduct research and present findings to the President after which he will decide if he agrees with the Secretary’s assessment and recommendations[ii]. If the President and secretary both conclude that action must be taken in the interest of national security, then the President is allowed broad power to remedy the effect of imports in the form of tariffs, quotas, and other such trade remedies. This particular investigation into aluminum is occurring due to the increases in aluminum imports as well as the decreasing influence the U.S. has in global aluminum production. 

The Problem

The concerns surrounding aluminum imports are two fold, with one concern being U.S. performance in the global market with respect to its domestic production and competing producers, and the other being a concern about where the U.S. is getting their aluminum. Excess aluminum capacity generated in China paired with government subsidies distorts the prices in the global market making them artificially low.

screen shot 2016-04-19 at 2.14.31 pm

Consumers will pick the cheaper option from Chinese producers. American aluminum producers are being effectively priced out leading many companies to close plants all over the country, or have to operate at reduced capacity [iii]. Due to dropping prices Century Aluminum’s plant in Hawesville, Kentucky had planned to shut down completely by the end of October, but decided to remain operational, but can only do so at the 40% level. In 2002 China made up for 11% of the world’s aluminum production, it now makes up for 55% [iv] and three out of the 5 largest aluminum producers are Chinese companies [v]. Although China can account for most of the problems the U.S. is facing in the global market because of price manipulation, the U.S. is also competing with both Russia and Canada. However those relationships are more amicable, especially with Canada.

The Beer

The can sheet used to make beer cans is made up of 70% recycled cans and scrap metals and 30% primary aluminum. The can sheet itself is not produced abroad only a small fraction (~2%) gets imported into the U.S. The primary aluminum needed for production, however, does need to is being imported. Bauxite is needed for the production of primary aluminum. Current reserves are estimated at 55 to 75 billion metric tons spread throughout Africa (32 percent), Oceania (23 percent), South America and the Caribbean (21 percent) and Asia (18 percent) . While the U.S. has some small reserves in Arkansas, but minimal mining is done in the country [vi]. Our friends in the North are responsible for 66% of the primary aluminum imported into the country (thanks Canada).

Screen Shot 2017-12-04 at 10.41.11 AM

Persons in the industry argue that importing primary aluminum neither poses an economic nor national security threat. The actual production of the can sheet itself is still overwhelmingly produced in the country (approximately 98%)[vii].

Packaging and Beer related U.S. companies are worried about the adverse effect trade restrictions could have on their businesses and as a result would  are seeking exemptions from the investigation as a means to eliminate the chance of any trade remedies on primary low-grade aluminum. Any potential trade remedies imposed on aluminum would raise the price of production which would also be reflected in increased prices to consumers. Manufacturers,  brewers, as well as legislators are attempting to get the investigation exemption for low grade aluminum. Six Republican (Gardner-CO, Isakson-GA, Perdue-GA, Johnson-WI, Enzi-WY, and Barrasso-WY) and two Democratic senators (Bennet-CO, and Baldwin-WI) sent a letter to Wilbur Ross and James Mattis urging them toward exemption. 

 

National Security

Rather than hurting the beer industry, and affecting the relatively low prices of beer that many americans value, the investigation should seek to focus on high purity aluminum. High purity aluminum is needed to make air force jets, armored vehicles, missiles, and warships.

FG15-2299_004 F16 ConfRm v2 2 F-16s

The image shown above is a Lockheed Martin F-16V. Other aircrafts made with high quality aluminum include, F-15, F-22, T-45, AWACS, C-17, E-2 and Nimrod.

The problem facing the U.S. in this case is where to get their supply of aluminum without compromising quality or national security interests. Currently the U.S. has only one domestic plant that produces high purity aluminum, but it does not operate at full capacity. During peacetime this system is functional, but there are concerns about what the country would do in the event that it would require large quantities of high purity aluminum. There are very few smelters in the world that produce it and those are mostly located in China, Russia, and the Middle East [viii]. Without a reliable source of high purity aluminum the U.S. could be left vulnerable should a military confrontation occur especially if said conflict is with one of the aforementioned countries or one of their allies.

Conclusion

Chinese companies’ use of subsidies is harming American producers in the global market due to artificially low prices. The U.S. Section 232 investigation is responsible for seeing how the importing of aluminum could affect the nation’s security. Those who believe aluminum imports could have a negative effect will cite the lack of domestic high purity aluminum smelters in the U.S., while foreign nations claim that U.S. national security is not affected because of domestic production capacity. The investigation will conclude on January 21st of 2018 at which point findings and recommendations will be given to President Trump. American businesses and other U.S. actors seem to have reached general consensus concerning the importance of fair business practices and addressing the problem of Chinese overcapacity, but differ on exemptions to the investigation as well the degree to which aluminum imports affect national security. High purity aluminum needs to be the focus of the Chamber of Commerce investigation so as not to endanger the all important american brewer.

 

[i] President Donald Trump, Memo https://www.commerce.gov/page/section-232-investigation-effect-imports-aluminum-us- national-security#memo

[ii] http://www.bis.doc.gov/232

[iii] Kasperowicz, Pete. “Trump moves to protect US industry from cheap aluminum imports.”Washington Examiner, Washington Examiner, 27 Apr. 2017, http://www.washingtonexaminer.com/trump-moves-to-protect-us-industry-from-cheap-aluminum- imports/article/2621504.

[iv] Phippen, Thomas. “Trump Begins Investigation Of Aluminum Imports.”The Daily Caller, The Daily Caller, 26 Apr. 2017, dailycaller.com/2017/04/26/trump-begins-investigation-of-aluminum-imports/.

[v] https://www.statista.com/statistics/280920/largest-aluminum-companies-worldwide/

[vi] The Aluminum Association, http://www.aluminum.org/industries/production/bauxite

[vii] Brewers Association https://www.brewersassociation.org/government-affairs/investigation-effect-of-imports-of-aluminum-on-u-s-national-security/

[viii] Allen-Ebrahimian, Bethany. “Cheap Chinese Aluminum Is a National Security Threat.”Foreign Policy, Foreign Policy, 10 May2017, foreignpolicy.com/2017/05/08/cheap-chinese-aluminum-is-a-national-security-threat/.

 

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