The Alumina Chronicles:
The Impact Of The Section 232 Tariff

May/June of 2020

A new aluminium rolling mill for Novelis Corporation is seen here as it was under construction in Guthrie, Kentucky,
in December of 2018.  According to Novelis Corporation, the company’s estimated (US) $300 million investment will
create an “automotive aluminium finishing plant preparing aluminium for use in vehicle parts such as body-in-white,
hoods, doors, lift gates, and fenders.”  A news release dated February 11, 2020, stated that “The company's greenfield
automotive finishing plant in Guthrie, Kentucky, is in the commissioning process, with commercial shipments to
customers expected to commence in the coming months.”
(The photograph was provided courtesy of McGhee Engineering through the City of Guthrie.)

The implementation of a broad-based tariff on aluminium imported into the United States has had mixed results.  This 10% tariff enacted under Section 232 has brought in additional revenue into the Treasury of the USA.  According to some, the Section 232 tariff on imported aluminium has also been utilized to increase pricing and profit margins for certain businesses.

(The name of this aluminium tariff comes from the “Section 232” of the Trade Expansion Act of 1962 passed by the U S Congress and signed into law by President John Kennedy.)

“Certainly, the Section 232 tariffs on imported aluminium have impacted the industry in a number of ways,” stated Mr. Matt Meenan, Senior Director of Public Affairs of The Aluminum Association.  “Our belief and position has long been that a more targeted approach to trade enforcement – including a focus on addressing persistent aluminium overcapacity in China – is preferable to across-the-board tariffs.”

Businesses are able to submit requests to have individual products excluded from the Section 232 tariff.  Those requests have to be made for each specific type of each product.  For example, the same product manufactured in two different sizes would require two separate exclusion requests.  An exclusion request, if granted, generally allows for exclusion from the Section 232 tariff for one year for that specific product.

To provide a perspective of the some of the impacts of the 10% broad-based tariff on aluminium imported into the USA, several statistical reports were reviewed.

Requests to be excluded from the Section 232 aluminium tariff are found in two separate databases maintained by the Federal government of the USA.  One database includes all exclusion requests made prior to June 13, 2019;  the second database includes all exclusion requests made on that date and since.

Where decisions have been made regarding exclusion requests submitted since June 13, 2019, detailed in that second database, the Administration of President Donald Trump has acquiesced to almost every request from businesses for exclusions to the Section 232 aluminium tariff.

Specifics for the second database of exclusion requests as of April 15, 2020:

Since June 13, 2019, there have been a total of 6,446 requests to have specific products imported into the USA without paying the Section 232 tariff on imported aluminium.

Of those total requests, decisions have been made by the Bureau of Industry and Security of the U S Department of Commerce for 3,519 requests;  2,927 requests are still in process and no decisions have been made whether to approve or disapprove those specific requests.

Of the 3,519 exclusions requests decided in the second database, 3,518 requests were granted.

One exclusion request – one – made since June 13, 2019, has been denied by the U S Department of Commerce.

A broader perspective can be found through a report of The Aluminum Association which has compiled information from both databases.  As of March 31, 2020, The Aluminum Association indicated that there had been a total of 16,922 exclusion requests made since March 29, 2018.  Of that total, The Aluminum Association indicated that 11,009 were granted, 2,635 were denied, and 3,278 remain to be decided.

Overall, using the numbers from The Aluminum Association, the approval rate was 80.7% for all exclusion requests decided by the U S Department of Commerce as of March 31, 2020.

“The Aluminum Association has called for significant reforms to the Commerce Department’s Section 232 aluminium tariff exclusion process,” Mr. Meenan stated.  “Exclusions granted for massive volumes of imported aluminium flat-rolled products that are already made by domestic U S aluminium manufacturers have created a market dynamic that gives foreign competitors an unfair advantage over domestic producers.  The current system is creating major distortions in the marketplace, causing significant harm to U S aluminium companies and their workers.”

Mr. Meenan cited an example involving can stock:  “In 2020 alone, the Commerce Department has granted around 5 billion pounds of can stock exclusion requests, with a significant portion coming from China.  These granted exclusions are considerably larger than the entire domestic aluminium can stock market.  The exclusion process is directly undermining the Administration’s stated goal of getting tough with China and helping U S aluminium companies.”

“Some members of The Aluminum Association have requested and received product exclusions,” noted Mr. Meenan.  “And many of our members have also opposed exclusions requests – in some cases successfully;  in some cases not.”

Among those that have requested and received exclusions from paying the additional 10% tariff for one or more specific aluminium products have been leaders within the aluminium industry, including Arconic Architectural Products, Ardagh Metal Beverage USA, Ball Metal Beverage Container Corporation, Constellium, Crown Cork & Seal, Gränges International, JW Aluminum, Novelis Corporation, Pepsico, Reynolds Metals Company, Rusal America Corporation, Sumitomo Corporation, and UACJ.

Businesses that have not requested exclusions continue to pay the Section 232 tariff on imported aluminium.

While exclusions are designed for businesses seeking to be excluded from the tariff, exemptions are designed for nations that are exempt from having their businesses pay the tariff.  Three countries are exempted from the Section 232 aluminium tariff:  Australia, Canada, and Mexico.  A fourth country, Argentina, remains subject to a quota.

Other nations continue to strive to be added to the list of countries exempted from the tariff.  The United Arab Emirates [UAE] is one of those nations.

On January 28, 2020, a meeting was held by six officials with the U S Department of Commerce with four individuals representing Emirates Global Aluminum (EGA).  According to documentation from the U S Department of Commerce, the representatives of EGA “asserted that the UAE meets all the criteria for an exemption from the aluminium tariffs and that they would like to be exempted from the tariffs.  They expressed hope that, given the strong relationship between the United States and the UAE, they could secure a country-wide exemption from the tariffs rather than have to go through the formal annual product-specific exclusion process.”

The document from the U S Department of Commerce indicated that Mr. Ian Steff, Assistant Secretary for Global Markets and Director General of United States and Foreign Commercial Service, “thanked the EGA representatives for their comments and assured them that he would convey their message to the Secretary of Commerce and the Office of the U S Trade Representative.”

This pie chart graph details the estimated share of product exclusions granted by the U S Department of Commerce.
(This image was provided courtesy of The Aluminum Association, 2020.)

The impact of the Section 232 tariff has varied within segments of the aluminium industry.  Part of those differences can be traced to additional anti-dumping and countervailing duties placed on certain aluminium products, especially particular aluminium products manufactured in China.

Take, for example, semi-fabricated aluminium products.

Of the top twenty countries that have been the beneficiaries of exclusions granted to businesses by the U S Department of Commerce, Canada, China, France, and Indonesia have seen declines in the actual amount of semi-fabricated aluminium products exported to the USA between 2017 and 2019, according to a document dated March 31, 2020, from The Aluminum Association.

While those four nations have seen decreases, Bahrain, Brazil, Egypt, Germany, Greece, India, Italy, Japan, Norway, Oman, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, and the United Kingdom have seen increases in the amount of semi-fabricated aluminium products exported to the USA in 2019 as compared to amounts in 2017, according to that same document dated March 31, 2020, from The Aluminum Association.  Each of these nations are also among the top twenty countries that have been the beneficiaries of exclusions granted to businesses by the U S Department of Commerce.

One of the businesses facing domestic and international competitors is JW Aluminum.  The company employs more than 600 people at three plants in Goose Creek, South Carolina; Russellville, Arkansas; and Williamsport, Pennsylvania.

“At our South Carolina location, we are building one of the most state-of-the-art aluminium continuous cast facilities in the world to secure the future for our teammates, customers, communities and ultimately, manufacturing in America,” stated Mr. Lee McCarter, Chief Executive Officer of JW Aluminum.

This American company has advocated for “targeted trade measures that promote fair trade and provide a level playing field to support a global marketplace,” according to Mr. McCarter.  “This industry cannot continue to allow certain entities from certain countries to manipulate the marketplace.  Unfortunately, it’s been going on for decades and it continues to go on, which is why we need targeted trade actions to enforce rules-based trade.  In light of the coronavirus pandemic, now more than ever, we must understand how important it is to foster fair trade for a healthy supply chain.”

Mr. McCarter noted there’s “a clear distinction between tariffs and duties.  Over the past few years, the U S government has approved several types of tariffs and duties – the 232 and anti-dumping and countervailing duties – to address the unfair trade practices impacting the entire aluminium supply chain.  While the 232 tariffs are broad-based with no specific duration, we know targeted actions toward unfairly-traded imports result in a more even playing field and promote investment in the industry here in the United States.  Although the expansion at our South Carolina plant was years in the making and contemplated well before any tariff or duty activity had been enacted, as targeted duties have been put in place, we’ve seen much greater interest in the investment community.  And again, as supply chains suffer during this pandemic, it highlights the need for continued investment in American manufacturing.”

JW Aluminum is one of a number of businesses in the USA that has requested exclusions from the Section 232 aluminium tariff.  The firm has made a total of 20 exclusion requests.  Of those requests, 3 were denied, 7 were granted, and 10 remain to be decided.

“We support and participate in a global marketplace, and we also make a distinction between tariffs like the [Section] 232 and targeted duties to enforce trade laws,” stated Mr. McCarter.  “We have filed exclusion requests as it relates to imported products that we don’t have the capability to produce in our plants.”

“Whether through tariffs or duties, trade actions and enforcement create the level playing field that is necessary for the long-term health of the aluminium industry and critical supply chains,” concluded Mr. McCarter.

A different perspective comes from the Beer Institute.

“In order to compete, American brewers need a fair and transparent pricing system for aluminium,” stated Mr. Jim McGreevy, President and CEO of the Beer Institute.  “The Beer Institute supports the repeal of the [Section] 232 tariffs establishing tariffs on imported aluminium.”

“We support the [President Donald Trump] Administration’s desire to create and grow jobs here in the United States, which is why our member companies are proud to source nearly all of their aluminium from the U S,” Mr. McGreevy continued.  “However, the U S market is experiencing a cansheet shortage, and neither the United States nor other nations outside of China can meet the demand required both in the United States and across the globe for aluminium cansheet. The federal government previously removed aluminium cansheet from products subject to 301 tariffs, and granting an exclusion for cansheet would allow brewers and beverage makers the ability to meet consumer demand and supplement their U S supply with supply from additional countries.”

According to Mr. McGreevy, “Imported primary aluminium and cansheet are critical to the beer industry as more than 60 percent of all beer produced and sold in the United States is packaged in aluminium cans and aluminium bottles.  In 2017, brewers bought over 36 billion aluminium cans and bottles, and aluminium is the single largest input cost in American beer manufacturing.”

The importance of the beer industry is noted by statistics cited by Mr. McGreevy: “There are more than 8,000 active breweries in the United States, supporting more than 2.1 million American jobs.”

The Beer Institute is supporting several proposals that would affect the aluminium industry, including “legislation that would provide the Commodity Futures Trading Commission and Department of Justice [in the USA] the necessary authority to provide oversight over price benchmarking entities, including those that publish the Midwest Premium,” said Mr. McGreevy.

According to the Beer Institute, the Section 232 aluminium tariff is not only being assessed on imported aluminium from non-exempt countries, but is also being placed on exempt aluminium imported products as well as domestic-produced aluminium.

“Since aluminium tariffs went into effect in March 2018, the American beverage industry has been charged tariffs in the form of a duty-paid Midwest Premium on all metal purchased, including tariff-exempt metal such as scrap,” said Mr. McGreevy.  “As a result, the American beverage industry paid (US) $582 million in ‘tariffs’ while the U S government only collected 14% of that amount.  The rest went into the pockets of upstream suppliers.”

While some have advocated for the repeal of the broad-based 10% tariff on aluminium, others continue to see the value of retaining the Section 232 tariffs on both aluminium and steel.  One of those groups is the United Steelworkers (USW).  This union represents a number of workers at aluminium and steel plants throughout the USA and Canada.

In a statement dated March 19, 2020, Mr. Tom Conway, President of the USW International, noted that “Removing tariffs on those products now just invites more of the cheating that led to the penalties in the first place.  Chinese goods, for example, would swamp U S markets at the worst possible time, as American industries – still trying to recover from the illegal trade of the past – also face the COVID-19 economic slowdown.  In the wake of increased dumping, U S factories would be forced to scale back or close, throwing more Americans out of work.”

“The Chinese government subsidizes steel, aluminium and other manufacturing with cash, loans that producers don’t have to repay, and other kinds of aid,” Mr. Conway continued.  “Then China dumps products in foreign markets at artificially low prices, undercutting domestic producers and costing workers their jobs…Yet America’s core industries remain vulnerable.  Production increased after the tariffs went into effect, but demand fell again last year.  Removing tariffs now in a misguided effort to stimulate the economy will only knock the industries on their heels again…Right now, China sits on huge surpluses of steel and aluminium.  If Congress lifts the tariffs, these products would deluge American markets almost immediately, U S manufacturing might never recover.  America must keep the steel and aluminium tariffs in place.”

“But those defensive measures aren’t sufficient by themselves to ensure the long-term survival of America’s core industries,” stated Mr. Conway.  “The nation must ramp up domestic demand – significantly invest in these industries itself – to keep factories operating and workers employed.  A national infrastructure program – carried out with American labor and U S-made products and materials – would help accomplish this.  Investments in roads and bridges, environmentally safe sewer systems, clean-energy buses, high-speed rail and modern ports would create millions of jobs…The nation also must find and tap other potential sources of industrial demand.”

“Congress must leave the steel and aluminium tariffs in place and redouble efforts to find new uses for American products,” Mr. Conway concluded.  “That’s the way to get America’s economy healthy again.”

JW Aluminum is an example of a business facing the changes in the aluminium industry in the USA and globally.  The company has invested approximately (US) $300 million to substantially expand its operations in South Carolina (in the above photograph provided by JW Aluminum) with a focus on the building products market.  JW Aluminum reported that a 220,000 square foot building included in the expansion “is complete and we are currently finalizing the installation of the new equipment, scheduled to come online early third quarter of this year…The new technology at this facility will be using 100% scrap.”

Also, during 2020, JW Aluminum will be closing its foil plant in Saint Louis, Missouri (seen in the photo below provided by JW Aluminum);  the closure date is set for May 30, 2020.  An estimated 190 people worked at this facility.

According to a news statement from JW Aluminum, this facility was acquired from Alcoa in 2004 “when Chinese imports of foil represented less than one percent of the total aluminium market.  Since that time, Chinese imports of foil grew to almost a quarter of the market, largely due to China's unfair trade practices.  This surge in Chinese imports resulted from government-supported, massive overcapacity in China to produce aluminium and aluminium products.  China’s exports of large and increasing volumes of these products have disrupted markets in the United States and throughout the world.”

“This outcome is one we all worked diligently to prevent,” stated Mr. Lee McCarter, Chief Executive Officer at JW Aluminum.  “However, even with multiple tariffs and duties now in place, it hasn't been enough to overcome the devastating effects of China's market-distorting behavior.  The decision about St. Louis is a difficult one.  Strategically, it is an important step for JW Aluminum to maintain a healthy and robust U S manufacturing presence in the decades to come.”

Do you have questions about the aluminum industry?

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Your questions may be used in a future news column.

Contact Richard McDonough at aluminachronicles@gmail.com.

 © 2020 Richard McDonough