The Trump administration launched a wide-ranging probe of aluminum imports that could end in broad tariffs or other trade restrictions on the metal.
Producers in Canada and China -- by far the biggest aluminum exporters to the U.S. -- could face the biggest impact from any tariffs coming out of the case, which may raise U.S. domestic aluminum prices.
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The new administration is increasingly relying on national security as an argument for considering tariffs or other tools that could block some imports and help rebuild parts of American industry.
"We're producing less and less of everything and only have the one producer of aerospace-quality aluminum," U.S. Commerce Secretary Wilbur Ross told reporters at the White House. "It's very, very dangerous, obviously, from a national defense point of view" only to have one producer of a material needed for defense, he said, citing applications in armor and advanced aircraft.
The aluminum case follows a steel inquiry that the Commerce Department launched this month. Both cases will likely give the Trump administration leverage in resolving what U.S. metal producers see as global overcapacity, in large part caused by Chinese production.
In both cases, the Trump administration dusted off a rarely used legal provision known as Section 232 that enables the Commerce Department to investigate the national-security implications of imports, with the president having the option of restricting the imports when the investigation is complete.
Investigations of steel and aluminum imports under Section 232 could result in broad import restrictions and have a big impact on global trade, or the administration could find that no changes are warranted. U.S. President Donald Trump could also narrow any action to specific metal products with clear military or security applications.
The uncertainty over the results of the cases reflects uncertainties in Mr. Trump's trade policy: He and his aides have used fiery protectionist rhetoric, especially on the campaign trail, but have also signaled they are seeking leverage to open markets for U.S. exports.
Initiating the steel and aluminum cases gives the administration advantage in negotiations with China or other producers on reducing excess metal production capacity, trade lawyers say. American producers say China's subsidized metals industry weighs on global prices and drives U.S. firms out of business.
"It's good news the administration is using this tool, but what matters to Ohio workers and the aluminum supply chain is whether it leads to real relief and action against China's market-distorting policies," said Sen. Sherrod Brown (D., Ohio).
With punitive dumping and subsidy tariffs already in effect, the U.S. currently imports just $2.9 billion in aluminum and aluminum products from China, compared with $6.9 billion from Canada.
Metals-industry analysts say government regulators are likely to have a tough time showing the defense industry's access to aluminum is in jeopardy because imports account for a small portion of the aluminum demand.
More than 90% of the aluminum sheet used by the aerospace industry, include military aircraft builders, is produced domestically, said Jorge Vázquez, managing director at the Austin, Texas, consulting firm of Harbor Aluminum.
The aluminum case is the third big trade flashpoint with Canada in recent days, after the Trump administration complained about the country's dairy practices that keep out U.S. milk and applied preliminary tariffs based on alleged subsidies received by Canadian lumber.
After concerns about the effect on Canadian workers and the industry, union officials withdrew their support a year ago for a broad aluminum case under consideration in the Obama administration.
"The action will help identify the importance of aluminum, but it may not identify the right response," Leo Gerard, the president of the United Steelworkers union, said Wednesday. "China's the problem, not Canada or other countries which are following the rules."
The Trump administration has signaled it would initiate major trade cases itself, as opposed to waiting for U.S. industries to file their own cases. One reason the government can file trade cases is to pursue allegedly unfair trade when a U.S. industry is divided over concerns about workers or affiliates abroad, lawyers say.
While Canada is the biggest U.S. supplier now, no country has ramped up aluminum production and disrupted prices in the past decade more than China, U.S. executives say.
Fueled by access to inexpensive electricity and tax breaks, Chinese aluminum output doubled from 2010 to 2016, according to the U.S. Geological Survey. With local demand slowing, more of it was sent to the U.S., which was importing about half of its aluminum by 2016 -- up from only 14% in 2010.
In complaints to the Commerce Department, American aluminum executives have accused Chinese producers of using government resources to ramp up production, flood the market with metal and depress prices enough to hurt the U.S. industry. The American aluminum sector now has only five smelters, compared with 23 in 2000.
The Obama administration in January launched a formal complaint against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country's vast aluminum industry. The Trump administration's stance on that case isn't clear.
Representatives of the Canadian and Chinese embassies in Washington didn't immediately reply to a request for comment on the aluminum case.
Bob Tita contributed to this article.
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(END) Dow Jones Newswires
April 26, 2017 21:14 ET (01:14 GMT)