Trump Tariffs Hit Largest US Aluminum Company, ALCOA

Yves here. As we’ve said, tariffs are a blunt instrument.

By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at Angry Bear

In the history of antitrust law, one of the most important rulings by the US Supreme Court came in 1945, when the Aluminum Company of America (ALCOA), long based in Pittsburgh with heavy Mellon family ownership, was ordered broken up for being a monopoly, following a ruling by Judge Learned Hand. This was the famous “per se” ruling that said that simple domination of an industry by size was sufficient in the end to justify breaking it up. However, with the entry of Reynolds and Kaiser into the industry, ALCOA was in the end able to fend off being actually broken up, and today it is still the largest aluminum company in the US and sixth in the world, with Century Aluminum second in the US and Kaiser third. While still with most activity in the US, ALCOA is a multinational company operating in many nations around the world. Until 2016 it operated in all sectors of the industry, but then spun off some of its specialized processing for auto and aerospace inputs into the Arconic company.

Today, the stock of ALCOA fell over 4 percent on a report from the company of it expecting to see a , substantial decline in profits in the coming quarters due to the imposition of tariffs on aluminum by President Donald Trump. So, his imposition of tariffs on aluminum, designed to aid US aluminum producers, will be causing a substantial decline in profits for the largest aluminum producing company in the US. What is going on here?

It appears that the problem is that the US is increasingly a net importer of unprocessed aluminum that is the main input for companies that process aluminum, which is what ALCOA mostly does, even after spinning off Arconic. The US has never been a major producer of bauxite, the original source of most aluminum, only producing about 1 percent of global supplies of it. In term of producing unprocessed aluminum, the US reached a peak in 1980s, with this now only about a quarter of that level today. The US imports $23.4 billion of aluminum products, with nearly half of that, 46.8 percent to be precise, being unprocessed aluminum. So ALCOA is importing a lot of the unprocessed aluminum it uses to produce aluminum products. Unlike American steel companies, whose main inputs of iron ore and coal are domestically produced, ALCOA is more like an automobile company that is hurt by the tariffs on steel, which raise its costs. Thus it is not surprising that the US aluminum industry more broadly has opposed the Trump tariffs, in contrast to American steel and coal companies supporting the steel tariffs. I note that the US exports some finished aluminum products, but far less than it imports.

The top five nations from whom the US imports aluminum are Canada (36.3 percent), China (15.1 percent), Russia (7.0 percent),UAE (6.5 percent) and Mexico (4.3 percent). When the tariffs were first announced, meanie Canada and Mexico were exempted due to ongoing NAFTA negotiations, but on May 31, they were included given the apparent breakdown of the NAFTA negotiations. Back in 2006, ALCOA tried to take over Canada’s Alcan, originally a started by ALCOA, but was blocked as Brazil’s Rio Tinto took it over instead. So ALCOA imports a lot from Canada, meaning tariffs on meanie Canada are hitting ALCOA especially hard. As for meanie China, well, the yuan/rmb has hit a new low for the year against the rising US dollar, which will mean it will still be exporting to the US even as its economic growth rate declines somewhat to about 6.5 percent. But obviously we have nothing to fear as our “Art of the Deal” president assures us that “trade wars are easy to win.” The meanies will be put in their place, and ALCOA will just have to have a stiff upper lip and be patriotic along with all our soybean farmers.

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42 comments

  1. The Rev Kev

    If Trump and his mob are so determined on tariffs, would not the smarter way to implement them be by going on a sliding scale based on processing? What I mean is that if the US imported raw bauxite as an example from this article, there should be no tariffs at all but as the level of processing increases in that product, so does the tariffs. The highest tariffs then would be reserved for those products that were totally manufactured overseas.
    Just for an extra twist, if an importing country subsidizes a company’s products, then a tariff should be leveled on that product as it comes into the country to the value of the subsidy that was given it. I read that this is what France once did to the Japanese exporting cars to France. The Japanese government would subsidize each car by giving the Japanese car company about $600 (I think) so the French put an import tax on those cars as they hit French docks to the same amount.

    Reply
  2. JTMcPhee

    This all gets complicated so quickly, making more opportunities for credentialed classers to manage. Of course, ALCOA, as the article (not the headline) says, is also not an “American company” but a typical “multinational,” always looking out for monopoly and arbitrage opportunities, with the typical amoral history, https://en.m.wikipedia.org/wiki/Alcoa. So I’ll shed no tears for tariff effects on the Corp, though of course the impacts on workers are, ahem, deplorable.

    Trump is maybe like the kid with the CRSP-R set he got for Christmas, having a grand old time swapping alleles in organisms’ genetic material, heedless of what might eventuate out of partially informed tinkering…

    Reply
  3. SimonGirty

    No sweat: once Venezuela is declared our protectorate, a significant portion of OUR bauxite (and ridiculously well built potential 1st ladies) will be serendipitously rendered domestic… It worked for the previous Il Duce?

    Reply
  4. jackiebass

    I used to go on vacation in Canada near Kingston, Ontario. There is a big ALCAN plant there. I knew several workers at the ALCAN plant. I asked them what they did and what the plant produced. The plant produced rolled aluminum that was shipped exclusively across Lake Ontario to an ALCOA plant in OSWEGO, NY. They processed it into other products made from aluminum. So Trumps tariffs will hurt the workers in the ALCOA plant in Oswego. I don’t think Trump realizes how complex trade has become under globalization. Probably the industry that is the most complex is the auto industry. If implemented Trumps trade policies will drastically effect the auto industry. Also the consumer will pay for this in higher prices. The manufacturing industry is so complex that it can’t easily and economically be changed.

    Reply
    1. Michael

      I wish i had a ruble for every time these words have been written or uttered in the last 18 months: ” I don’t think Trump realizes how complex…” [insert domestic, trade, foreign or other policy topic here]

      His instincts go only as far as the next Rassmussen survey or reaction from the fox talking heads. It is also why he’s surrounded himself with every sycophant, grifter and grafter available.

      Reply
      1. JTMcPhee

        “Crucify Him!Trump! Give us Barabbas Pence! Because.PUTIN!!!”

        And because the current system has been doing such a bang-up job of serving human needs, and is so finely constructed that it is self-correcting toward the Golden Mean…

        Gee, it’s so uncomfortable when the Narrative Juggernaut starts coming apart. And so comfortable to believe that regicide will make it all better, leave a clear path to Perpetual Prosperity under the gentle ministrations of the corporate-security state… so easy to foment, or go along with, the sowing of fear, uncertainty and doubt.

        Reply
        1. Synoia

          And because the current system has been doing such a bang-up job of serving human needs, and is so finely constructed that it is self-correcting toward the Golden Mean…

          Certainly is, emphasis on the non arithmetic definition of “Golden Mean.”

          Reply
        2. ObjectiveFunction

          Yeah, it all sounds like any stick to beat a dog.

          *Cleveland* says the market is up, the dollar is sound, the future looks bright. Ha! that’s Politics…

          *Harrison* says the market is up! the dollar is sound! the future looks bright! Ah-ah-ah, that’s Statesmanship!

          https://youtu.be/VeQRgIii5n4

          Reply
      2. SoldierSvejk

        Not sure it is accurate to blame DT exclusively. He is the public face of these policies, but someone else is drafting them in response to demands of entities hidden from public view. Who are they? I recall someone writing during the election (maybe Pepe E.) that one cannot fight a war with a country that produces one’s military spare parts. So undermining (however clumsily) China may have a far more nefarious purpose. While the US punditry busily screams RRRRusia, China is the real enemy in blob’s view. But yes, this would not be the first time that US policies led to a serious blow-back.

        Reply
      3. marku52

        If only the “other team” had a cogent plan to fix the US’ ongoing for 30 years or so chronic trade deficit that has let to the decimation of middle class jobs and chronic lack of demand that led to excessive personal debt……To say that crickets speak louder would be an understatement.

        But wait, the 9.9 per centers do have a proposal! That chary old chestnut “Let them eat training!”

        As if all the old manufacturing workers should magically lose 30 years of age and move to SF to learn Python programming while living in a dumpster.

        Trump got elected in part to fix this. He may be causing a lot of collateral damage, but no one else is even trying.

        Reply
          1. marku52

            That, and the tariffs, make it more than anything the useless Dems have promoted over their crocodile tears.

            That said, retraining is bound to fail. The tariffs have certainly been a new topic of conversation min more than a few boardrooms as some new outsourcing plan is proposed.

            Reply
            1. marym

              I don’t have the necessary knowledge to evaluate whether tariffs will help or harm particular industries; or whether benefits to particular industries – or at least to their investors, executives, donors, lawyers, and lobbyists who influence policy – will offset the harm, or trickle down to the workers. Maybe so, but there’s no evidence so far that Trump and his executive and judicial appointments are interested in improving or protecting the lives of workers in any other respect, so some skepticism about intent seems appropriate

              Reply
              1. marku52

                Oh for sure. I’m sure DJT will completely bollix it up. It’s just that reforming trade is a powerful electoral tool that the Dems could use.

                It’s just that their donor class hates the idea, and so the Dems leave this loaded weapon lying around for anyone (DJT for currrent example) to use

                Reply
                1. Amfortas the Hippie

                  I read somewhere that the demparty has a new slogan…to replace the anemic “better deal”…but i can’t remember what it is.
                  meanwhile, over in dem social media, everyone weeps for alcoa and a pipeline company and conagra…and the us chamber of commerce is being listened to(!) and various hedge fund managers and former robber barons who got rich in the Russian collapse are weighing in in sonorous tones just how bad all this is.
                  the Binary is thus: it’s either trumps disastrous bumbling or the good old washington consensus.
                  TINA, and all.

                  Reply
        1. flora

          Yes. I’d turn around the neoliberal’s ” I don’t think Trump realizes how complex…” point and say:
          ” I don’t think neoliberals realizes how complex people, society, …”

          Reply
        2. RepubAnon

          Trump’s not trying to stop off-shoring, either. If you’re looking to blame the Democrats, I’d look at the union bosses that helped get Nixon and Reagan elected. The “Reagan Democrats” drove the Clinton “triangulation” strategy of “Republican Lite” which got Clinton elected after Ross Perot split the Republican vote. Since then, it’s been accepted Democratic political consultant doctrine that they need to suck up to the ultra-rich donors to win.

          Sort of like the French generals in the 1930s thought the Maginot Line would be an effective defense.

          Reply
      4. c_heale

        Not sure Trump’s policies are smart, but it’s funny how the past 40 odd years of TINA and neo-liberalism (not saying Trump isn’t neo-liberal either in some respects) weren’t “complex”. It’s also strange how somebody so stupid managed to beat every other candidate to be President.

        Reply
        1. RepubAnon

          Trump is an idiot about most things – but he’s really good at manipulating the media, and telling desperate people what they want to hear. It’s why he could talk Atlantic City intop giving him lots of tax breaks – and why his casinos went bankrupt.

          Reply
  5. Jim Haygood

    Basic materials industries were far more dominant in the mid-20th century than today, in line with the trend described in today’s “Economy of Intangibles” post. In 1959, the 30-member Dow Industrial Average contained five metal-producing basic materials companies:

    Alcoa Aluminum
    Anaconda Copper Mining
    Bethlehem Steel
    International Nickel Company
    United States Steel

    As recently as 1981, the Materials sector made up 10 percent of the S&P 500 index by weight, according to data from Siblis Research. Today, at a meager 2.6% share, the shrinking Materials sector may have to be merged or redefined into a broader sector as Telecoms (at a 2.0% share) will do in September when it becomes Communications Services with broadcast and social media, cable companies and internet search engines added.

    Every one of the metals producers listed above has been ejected from the Dow Industrials, with Alcoa the last to leave in Sep 2013. The Orange Flake’s pathetic attempt at economic surgery with a stone ax will not bring them back. Oh the humanity …

    Reply
    1. Wukchumni

      The epic flood of record happened here in 1955, so all of the replacement bridges over the river are dated from 1956 to 1959.

      One is a steel girder type, with “BETHLEHEM USA” in raised letters on each and every girder.

      A strictly limited edition, ha!

      Reply
    2. Synoia

      Ah, and your proposal is? (Pick one)

      0. Status Quo
      1. More Neo Liberal
      2. Job Guarantee
      3. Basic Income
      4. Let them starve
      5. Global war
      6. Other (specify)……..

      Reply
  6. timbers

    In the history of antitrust law, one of the most important rulings by the US Supreme Court came in 1945…a ruling by Judge Learned Hand. This was the famous “per se” ruling that said that simple domination of an industry by size was sufficient in the end to justify breaking it up.

    Facebook, Google, iPhone, Amazon, come to mind. And what about nearly half the U.S. having only one or two choices on the ACA exchanges?

    Reply
  7. clarky90

    This is great news! It means that the price of aluminium beer and soda cans (and the contents) will increase, pushing down demand. “Our” health will benefit.

    Where is this sudden, widespread concern for the Glyphosate-infused soybean and it’s farmers, coming from? Is this a thing?

    Reply
  8. John B

    Ignorance does seem to play an important role in Trump administration policy-making, but not in the trade area. Trump did not come up with the idea of using Section 232 of the Trade Expansion Act of 1962 to impose tariffs on steel and aluminum; people in his administration with trade law backgrounds did. Lighthizer, his trade representative, was the leading lawyer for US Steel for decades. Trump’s Undersecretary of Commerce with primary responsibility for tariff policy was lead lawyer for U.S. aluminum producers. Both also represented the United Steelworkers union.

    The downstream portion of the US aluminum industry has been doing well for years, partly because they have been protected by antidumping duties on semi-processed aluminum, and partly because they could import cheap raw aluminum. On the other hand, the upstream part of the industry — refiners and smelters — has not had protection and has been badly hurt by Chinese excess capacity. By one report, they lost more than half their jobs between 2013 and 2017.

    Trump’s trade officials believe that healthy basic manufacturing is essential for the United States, and are willing to impose tariffs to force US firms to develop more US manufacturing capacity, even if that means higher costs for downstream manufacturers. I suspect they would not be sad to see the WTO sink into Lake Geneva. Their views are controversial among economists, to say the least, and they may tend to disregard problems that will be caused in consumer product production. But that’s what they believe, and they’re doing it.

    Reply
    1. Synoia

      I suspect they would not be sad to see the WTO sink into Lake Geneva.

      A view shared by many

      Their views are controversial among economists, to say the least

      No problem. Many $$$ will resolve the economists’ concern$, when taken with expensive whine.

      Reply
  9. Louis Fyne

    Want to save the environment? Cheer for more expensive aluminum.

    What does more damage to the environment? Plastic straws of the millions of un-recycled aluminum cans? My hunch is the cans.

    Boeing has to make more expensive planes? Good. Airfare is too cheap as an airplane ticket price doesn’t capture all the negative externalities from emissions (ya, i don’t like the idea of expensive air travel, but I like the idea of ocean acidification less)

    Cars get more expensive? Whatever happened to reduce, reuse, repair? (hat tip: naked capitalism)

    Environmentalists should cheer on Trump’s unintentional, inadvertent policy shift to being a Henry David Thoreau-esque consumption-reduction activist.

    Reply
  10. Andrew Watts

    Where’s the confidence in the market among the globalized capitalists? Market forces will adjust to this new reality through the mysterious operation of the invisible hand. It’s almost as if the belief in markets is a sham and the government is subsidizing profits through preferential tax treatment, facilitating labor arbitrage, and offshoring.

    Of course, the financial crisis normalized the belief that profits must be protected at all costs regardless of the socioeconomic factors at stake. But that was a different time and administration.

    Reply
  11. annie moose

    from the farmbelt;
    Breakeven price for soybeans is estimated to be $10.05 per bushel. The breakeven price for soybeans reported in table 2 is sensitive to changes in yields, prices, and cost estimates.Apr 13, 2018
    Projected Corn and Soybean Breakeven Prices • farmdoc daily
    https://farmdocdaily.illinois.edu/…/projected-corn-and-soybean-breakeven-prices.html
    Aug 2018 price 8.46/bushel

    Reply
      1. Amfortas the Hippie

        ADM is not a farmer.
        let alone a small farmer.
        all the actual farmers I know are up to their ears in debt and despise pioneer(wheat) and conagra(corn) and ibp(beef).
        their near sharecropper status, while still unacknowledged, did not begin with trump.
        and yes…they’ll be hurt by this mess…but this is just the cherry on top of the steaming pile that’s been served in farm country for decades.

        Reply
  12. Scott1

    It probably is a good idea to have independence in strategic materials. However US & Canada relations have long been good. It is a Democratic Ally that uses the robust Parliamentary System. It is not an adversarial nation working to limit US access to lucrative markets in Asia & Indochina. While Canadians are skittish about full on free speech, they like a lot of it and most of the time though talking English, well, what are they talking about?

    It isn’t worth worrying about, Canadian aluminum, is what I have to say on that issue.

    There may well be a corollary between Collectivization & Suburbanization. Soybeans are food. Farmers who sell their land because they can’t make money with the crop they can grow and sell their land to developers are participating in the reduction of land available to grow food on.

    I posit anything that makes a nation more food insecure is bad. Of course it it gets bad there is always the Victory garden and the soybean lawn.
    The “All Beef Burger” is overrated.

    Reply
  13. Mikerw

    Much of this misses the point. It takes 14,000 KwH to produce a tonne of primary Al. Hence almost all smelters are located near cheap power; read either hydro electric (Australia, Canada, Venezuela, Madagascar, etc.) or where there is off-gas from oil production to generate power (Bahrain). The US does not really have the power to site smelters. So almost no level of tariffs will bring them back. Finally, modern smelters do not use that much labor anyway.

    Economically, for Alcoa and the like, and this is true of almost all extractive industries, almost all the return is in finding large ore bodies and exploiting them. Turning bauxite into alumina then aluminum actually usually net destroys capital, or has a low rate of return. But you need to turn it into Al to sell it.

    As to recycling, in the US a very high percentage of Al, and higher yet for steel, is recycled. They are among the few products where the economics of recycling actually work; unlike newsprint or plastics.

    Reply
    1. marku52

      There used to be a big AL plant on the Columbia river, near a hydro plant. Now it’s gone. Wasn’t because the electricity was too expensive….I don’t know why it closed, but union crushing and labor arbitrage might have been reasons. In which case– Trade did it.

      I ran a class to retrain some of those workers to be elec techs. Not one of them found a job in that line. One became a commercial electrician. Where my training might have had some tiny marginal effect.

      Which is why I call “magical sparkle pony points” for retraining as any kind of solution to trade dislocations.

      Reply

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