Perhaps you didn’t know this, but the US and China have been battling over aluminium for quite some time now, and over the last week or so the conflict has gotten particularly weird.
As proof, I submit this item reported by the Wall Street Journal’s Scott Patterson. The US just seized $25 million worth of aluminium connected to a Chinese aluminium tycoon named Liu Zhongtian.
Liu stands accused of stockpiling the metal around the world and then using complicated trade routes to get it into the United States without having to pay a 374% tariff.
That tariff was stuck on Liu’s aluminium by the Commerce Department back in 2010 because it was subsidized by the Chinese government.
Homeland Security and the Justice Department are investigating whether or not companies connected to Liu might have committed offenses including smuggling, conspiracy, and wire fraud in order to get this aluminium to the US.
This is what’s known in the industry as “dumping,” and we’ve been fighting with China about it when it comes to a bunch of commodities for a while now. This bothers the US because it lowers the price of aluminium around the world.
When China has a problem, we’ve all got a problem
Expect the fight to get worse. The Chinese economy has an overcapacity of commodities like steel, aluminium, coal and more. The companies that manufacture and sell those commodities also tend to be the most highly indebted companies in a highly levered Chinese corporate sector. To pay down that debt, these companies have to sell more product.
Keep in mind, these companies also employ millions of Chinese people. And last year, the government was forced to tell them that they should be prepared for millions of job cuts. This is all happening in the midst of an economic slowdown.
So you can see how China is in a bit of a tough spot here.
That is why earlier this week the US filed suit against China with the World Trade Organisation. It accuses China of illegally helping its aluminium industry with subsidies and breaks on energy costs. According to WTO rules, a member nation cannot provide subsidies that cause “serious prejudice” to another member state.
“China has used every play in the book to give its aluminium producers an unfair advantage, from below market loans to subsidized electricity, and America’s aluminium industry has been decimated as a result,” said Sen. Ron Wyden of Oregon, the ranking member of the Senate Finance Committee, in a statement on Thursday.
Where Trump and Obama connect
Recently, President Barack Obama also said that China was giving its aluminium industry an “unfair advantage.”
“These kinds of policies have disadvantaged American manufacturers and contributed to the global glut in aluminium, steel and other sectors…”We’re taking action to protect the workers – at home and around the world – who are hurt every day by these policies. That’s what we’ve done since day one.”
Obama has brought 16 cases against China to the WTO — more than any other president in American history. Last October, six Senators requested a suit against China over this, saying that the country’s aluminium manipulation cost them 15,000 jobs.
“I welcome today’s action by the Obama Administration to enforce America’s rights on behalf of the hundreds of thousands of hardworking Americans whose livelihoods depend on undistorted aluminium markets,” Wyden also said in his statement. “Now it is up to the Trump Administration to follow through aggressively and deliver real results and real jobs for these hard-hit American communities.”
The Chinese, for their part, say that the US suit is not “factual.”
President-elect Donald Trump will likely want to take even more measures against China. He’s continuously complained about the Chinese government’s undercutting of US goods in global trade and has called for higher tariffs on Chinese goods.
Of course, you have to be careful with this kind of stuff. The US has a 500% tariff on Chinese steel, and what that’s done is raise prices, depress consumption, and hurt manufacturers who have to buy the steel here in the US.
In a trade war, there are always casualties on both sides. Remember that.
Business Insider Emails & Alerts
Site highlights each day to your inbox.