Backfire Economics: Alcoa Seeks Waivers From U.S. Aluminum Tariffs Meant To Help It?

Mark J. Perry profile picture
Mark J. Perry

From Bloomberg:

Alcoa (AA) filed five requests with three being for aluminum that it said was unavailable from U.S. producers, and two for metal that can't be made in sufficient quantity domestically. Three of the requests are for aluminum that it said was unavailable from U.S. producers, and two are for metal that can't be made in sufficient quantity domestically. The one-year requests cover 39,500 metric tons, with Alcoa's Canadian subsidiary listed as the source of the metal.

The appeals come less than three weeks after Pittsburgh-based Alcoa said it was lowering its 2018 profit projection, in part because of tariff costs on material it makes mostly in Canada and ships to the U.S. In an interview last month, Alcoa CEO Roy Harvey called the tariffs a " significant" headwind. The aluminum slabs covered by the requests would be processed at the Warrick plant in the U.S.

"We filed these requests to ensure our Warrick facility can meet its commitments and better compete domestically and on an export basis," Tim Reyes, president of Alcoa Aluminum, said in an emailed statement. "Even if all the curtailed smelting capacity in the states was back online and producing metal, the U.S. would still need to import the majority of its aluminum, and most of it from Canada."

Tariffs have meant Alcoa pays more to get metal from its foreign subsidiaries into the U.S., even though the company benefits from inflated premiums added to the price of the metal to deliver it to the U.S. Midwest. The company said in its second-quarter earnings report that it incurred $15 million in costs on material shipped to the U.S. Alcoa produces more aluminum in Canada than it does in the U.S.

The Wall Street Journal reported:

The company predicted last month that the tariff will increase its monthly costs by $12 million to $14 million for as long as the duty remains in place.

One economic lesson here is that America's large corporations operate in an international marketplace with extensive global supply chains for inputs and extensive markets overseas for the sale of their final products. In the case of Alcoa, more than half of its sales are outside the US and those exports are at risk from the inevitable retaliatory tariffs that will result from Trump's insane and dangerous trade war. And that's in addition to the ~$150 million annual increase in materials cost for Alcoa.

The case of Alcoa is just one more example in a long and growing list of cases that demonstrate how protectionist tariffs inevitably backfire since protectionist politicians can never predict the myriad of long-term costs imposed on the economy from their "America first" trade follies that make American companies, workers, consumers, and shareholders "last" in practice.

This article was written by

Mark J. Perry profile picture
Dr. Mark J. Perry is a full professor of economics at the Flint campus of The University of Michigan, where he has taught undergraduate and graduate courses in economics and finance since 1996. Starting in the fall of 2009, Perry has also held a joint appointment as a scholar at The American Enterprise Institute. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University and in addition, and has an MBA degree in finance from The University of Minnesota. In addition to an active scholarly research agenda, Perry enjoys writing op-eds for a general audience on current economic issues and his opinion pieces have appeared in most major newspapers around the country, including USA Today, Wall Street Journal, Washington Post, Investor’s Business Daily, The Hill, Washington Examiner, Dallas Morning News, Sacramento Bee, Saint Paul Pioneer Press, Miami Herald, Pittsburgh Tribune-Review, Detroit News, Detroit Free Press and many others. Mark Perry has been best known in recent years as the creator and editor of one of the nation’s most popular economics blogs, Carpe Diem. Professor Perry has written on a daily basis since the fall of 2006 to share his thoughts, opinions and expertise on economic issues, with a strong emphasis on displaying economic data in a visually appealing way using graphs, charts and tables.

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