Given all the headlines about a deal between President Trump and House Democrats over revisions to the U.S.-Mexico-Canada trade agreement (USMCA), it would be easy to miss another trade issue that had been brewing even before this welcome development. And connected to it is a need for information that Congress has recently taken a thoughtful step to address.
Imported aluminum is one of the most important components in American manufacturing, as Department of Commerce data shows that the U.S. imported five times as many tons of primary aluminum as it produced in 2016. Last month, President Trump announced plans to impose tariffs on imported steel and aluminum from Argentina and Brazil, following on last year’s declaration that he would impose a 10 percent tax on imported aluminum.
Argentina and Brazil initially escaped the tariffs by agreeing to quotas on the amount of steel and aluminum they could sell to Americans. Canada and Mexico also received a reprieve from the tariffs earlier this year, when the administration dropped tariffs on aluminum and steel from imported from those two countries as part of its bid to secure approval for the U.S.-Mexico-Canada trade agreement. This should have had a significant impact because Canada and Mexico accounted for approximately 42 percent of U.S. aluminum imports. Yet for many firms that utilize aluminum in their products, this was not the case.
U.S. aluminum prices are based on a “Midwest Premium” which is added to the base price of aluminum to create a Midwest Transaction Price. Some aluminum consumers allege that these Midwest Transaction Prices are inflated and non-transparent. In addition, these industries are concerned that they are effectively paying tariffs on metal that should not subject to such levies – including metal from Canada and Mexico, and domestically sourced scrap. In response, S&P Platts, which generates the Midwest Premium, says their prices reflectmarket conditions. Commerce Secretary Wilbur Ross recently expressedhis own concerns by noting “the Midwest premium is now based on a survey of market participants, not actual trading.”
(For our part, access to data or facts on how the Midwest Premium functions was not always easy to come by.)
Why is seeking answers to this controversy important? Because if public officials are to craft policy that best serves consumers and taxpayers in market-based system, they must be able to determine the causes and effects that are reasonably attributable to the trade levers they hold, as opposed to other factors they don’t control or understand. Without this knowledge, U.S. leaders might be chasing down blind alleys by pursuing trade policies that are either ineffective or worse, counterproductive.
In reaction to this ongoing dispute, the House Agriculture Committee included language in the Commodities Future Trading Commission Reauthorization Act of 2019 requesting additional information on aluminum pricing. According to the bill, H.R. 4895:
The Comptroller General of the United States [Government Accountability Office, or GAO] shall conduct a study of the aluminum markets in the United States and globally, in general; the effectiveness and efficiency of the markets for purchasers of aluminum; what factors and policies influence the supply, demand, and movement of aluminum around the world; and the effectiveness of government oversight over the markets. Within 180 days after the date of the enactment of this Act, the Comptroller General shall submit to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate a written report that contains the results of the study.
This is a reasonable first step toward providing Congress with much-needed information on what some have characterized as an obscure pricing structure.
In the meantime, tariffs will continue to create problems for U.S. aluminum users. For example, the Commerce Department has received more than 3,200 requests to be excluded from the aluminum tariffs. As of December 3, 2019, fewer than half of these requests had been granted.
The Trump administration should quit requiring manufacturers to request tariff exclusions and instead should end all remaining tariffs on aluminum -- and also on steel -- that weaken the U.S. economy and make it harder for American manufacturers to add new jobs.