Will China destroy a critical U.S. industry?
First printed in the Epoch Times, April 1, 2020; updated April 22, 2020
The COVID-19 pandemic and subsequent global economic shutdown has had dramatic consequences for numerous industries. The shutdown has forced London Metal Exchange prices for aluminum below sustainable levels for U. S.-based producers. Heavily subsidized Chinese aluminum producers will soon cost more U. S. manufacturing jobs. Today, April 22, Alcoa announced the curtailment of its Ferndale Intalco smelter, a move that will impact the local and state economies and drive the U. S. deeper under Chinese control of a critical defense-related industry.
Prior to the virus outbreak, two U. S. aluminum smelters were slated for closure due to low LME prices, primarily due to Chinese overproduction and energy subsidies.
With the COVID 19 crisis, the remaining U. S. production capacity cannot economically compete, placing access to an essential metal for U. S. industry, and U. S. sovereignty, at risk.
As the People’s Republic of China dominates world aluminum production, U. S. domestic aluminum capacity is in peril. The U. S. had only seven operational aluminum smelters as of this writing — the PRC has over 140. America will soon be down to four. All U. S. facilities are financially at risk without significant assistance. A loss of U. S. aluminum manufacturing will be a direct threat to U. S. national security, our local economy and economic independence.
The Ferndale smelter has one of the highest production capacities in the U. S. at 280,000 tons per year. If it closes, it would take millions of dollars and possibly years to restore its capacity. It is the only operating smelter in the Western United States, and it employs over 700 skilled workers.
According to United States Geological Survey January 2020 estimates, total U. S. capacity is less than 1. 8 million tons annually. U. S. industry used 3. 4 million tons in 2019 and imports countless millions of tons of finished aluminum products, much from China. USGS estimates the PRC capacity at 44 million tons, more than 24 times U. S. capacity. China produced over 2. 8 million tons in February 2020 alone, the International Aluminum Institute estimates.
Aluminum is used in almost every aspect of economic production and national defense infrastructure. New aircraft, missiles, armored vehicles, electronics, radars and ships depend on the lightweight, strong and recyclable metal. F-18 and F-35 fighters use high-quality aluminum made at a single U. S. smelter in Kentucky, now operating at 40% capacity.
Aluminum is also a critical civil infrastructure commodity used in bridges, railways, buildings, machinery and transportation. It is prevalent in almost all health care equipment, from ventilators to hospital beds.
The PRC dominates global aluminum production, with as much as 60% of the world’s capacity. China has subsidized rapid expansion and saturation of the industry. The highest cost in aluminum processing is energy. The Chinese Communist Party’s economic hybrid system subsidizes power for producers.
Cheap, subsidized PRC aluminum has flooded global and American markets since the PRC joined the World Trade Organization in 2001. As a result, the number of aluminum smelters in the U. S. fell from 23 to seven since 2001. Ten smelters were lost in Washington state alone. The outcome has forced U. S.-based facilities to close and put countless Americans out of work.
The shutdown or curtailment of the remaining U. S. aluminum smelters will force American industry to depend on foreign imports for a critical defense and economic resource. A shutdown of Intalco, the last remaining aluminum smelter in the Pacific Northwest, will have a staggering local effect, costing 700 high-paying jobs in the Whatcom County economy. In a perilous moment in history, the local, U. S. and global future will be dependent on the CCP’s market manipulations for one of the most critical defense-related materials.
In the President’s National Security Strategy, maintaining the U. S. defense industrial base is essential. American industry depends on aluminum, the most recyclable metal on the planet. It is essential for future economic growth and defense. The U. S. cannot allow CCP “authoritarian capitalists” to dominate this critical industry.
I recommend these possible solutions:
1. Designate the domestic aluminum industry as a critical national defense priority, and create a national reserve stockpile of aluminum — the price is low, buy and hold. Purchasing a national aluminum reserve would provide immediate demand to reduce inventories and allow for a bridge through the COVID-19 pandemic.
2. In this time of crisis, establish “Buy American Aluminum” policies for all U. S. defense and stockpile purchases. American manufacturers can and should compete in a fair market, but this market is not fair.
3. Provide loans and grants to U. S. facilities in the proposed phase IV economic stimulus infrastructure legislation for upgrades that will improve competitiveness and environmental efficiencies in order to compete with the PRC.
The pandemic is causing significant damage to countless industries. Many need help, but some are core industries that the United States cannot afford to lose and still maintain sovereignty. U. S. aluminum is one of those industries, and it is teetering due to this pandemic. In a geostrategic quest for power, the CCP could not have planned it better.
Lieutenant Colonel James McKinney is a retired U. S. Army Foreign Area and Intelligence Officer with over 30 years of service in strategic, tactical and special operations assignments around the globe. He is now a defense and strategy consultant and serves on the Board of Saturna Investment Trust.
