Trump chooses oil fracking boss as energy secretary
Chris Wright, the chief executive officer of Liberty Energy Inc., has no previous Washington experience.
When Donald Trump won the White House, the sprawling aluminum smelter that hugs the Ohio River here was operating at less than half its capacity, and most of its skeleton crew of 270 remaining workers were fearful about their future.
But Trump’s tariffs have saved it, at least for now.
How a tiny industry – only 4,000 U.S. workers are directly involved in making primary aluminum currently – won protection is a testament to savvy lobbying, and one firm’s ability to get the Trump administration to view it as a sector that would soon be gone without a government intervention.
Century Aluminum Co, which operates the Hawesville smelter and ranks as the second-largest aluminum maker in the United States, spearheaded the fight. Almost everyone else that touches the metal, from the industry’s main trade association and consuming businesses from beer maker MillerCoors to Alcoa Corp – the country’s largest aluminum maker – were staunchly opposed to tariffs.
U.S. aluminum prices are based on a global benchmark—with a premium added on in the US to cover transportation and insurance. Since last year, the premium has included the 10% Trump tariff. Century and other domestic producers don’t pay the tariff, but still charge the same premium, giving them a pricing edge.
But what is good for Century hurts most other parts of the industry. Automaker General Motors Co estimated metal tariffs would add $1 billion to its costs in 2019. Heavy equipment maker Deere & Co laid off 163 workers in Illinois and Iowa as the trade war drove up its costs and at the same time hurt demand for tractors from farmers facing diminished exports.
The fight between Century and almost every other firm in the aluminum industry underscores a divergence that has occurred over the last two decades. Many sectors of the U.S. aluminum business are thriving, including processors who take raw aluminum and shape it into parts for everything from airplanes to washing machines.
But makers of primary metal – its most basic form – have struggled.
The United States was once the world’s biggest producer of primary aluminum. But by the time Trump took office, production had dwindled to the level last seen in 1951 and capacity utilization, a gauge of industry health, stood at just 37%. There were only five operating primary aluminum smelters left, down from 23 in 2001.
What hobbled the business was a combination of energy prices, new technology and globalization.
Century’s lobbyists emphasized that unlike steel, which still produces about 80% of US needs at domestic plants, primary aluminum smelters were on the brink of disappearing entirely
The drastically diminished U.S. footprint of primary aluminum helps explain how the industry was able to make its case for protection, say industry leaders, trade attorneys who fought for the tariffs, and analysts who track the business.
Century, based in Chicago, began its fight in 2015 when it hired the Washington law firm Wiley Rein LLP to help it press for protection. The company had already announced plans to shutter the Hawesville plant entirely, but opted instead to cut output to a fraction of its potential as it waited to see how its case would play out, company executives told Reuters.
The Obama administration filed a case with the World Trade Organization during its last week in office, accusing China of unfairly subsidizing its aluminum industry and harming domestic producers like Century. But by then, a new wind of protection was blowing in Washington, and Century saw the chance to tie its case closely to other basic industries seeking tariffs, particularly steel.
Century’s lobbyists emphasized that unlike steel, which still produces about 80% of U.S. needs at domestic plants, primary aluminum smelters were on the brink of disappearing entirely. They found a receptive audience at the Commerce Department, said Jesse Gary, Century’s general counsel.
Century also emphasized its unique role as the only U.S. operation that can make metal needed for military equipment like advanced armor used to shield Humvees and other military vehicles. “We’re the only volume producer of high purity aluminum in the Western Hemisphere and among NATO allies,” said Gary, adding that other main sources are China, Russia and the Middle East.
A spokesman for the Commerce Department confirmed that steel was a far bigger target for their investigation into the case for tariffs on imported metals. “But in terms of fragility of the industry, relatively speaking, aluminum was in a worse position than steel,” said the spokesman, given the low capacity utilization.
Industry giant Alcoa has argued that tariffs are the wrong way to address the problem facing domestic smelters, which is low global prices of primary aluminum caused by massive overproduction by China. The company has acknowledged tariffs have helped its remaining U.S. smelters. Speaking to investors in April, Alcoa CEO Roy Harvey said “tariffs have not solved the industry’s challenges, which stem from high subsidized smelting capacity in China that has resulted in surplus production.”
Meanwhile, Century’s Hawesville plant has become a poster child for tariffs. After the tariffs were announced last year, the company said it would spend $150 million modernizing and reopening parts of the plant, moves that will eventually lead to a doubling of the workforce to over 600.
Commerce Secretary Wilbur Ross famously downplayed concerns about metal tariffs hurting consumers by going on CNBC holding a can of Campbell’s soup and saying the tax would barely register in the cost of such goods. Ross last year attended a ribbon-cutting at the gritty, smoke-filled Hawesville plant, where he reassured workers that the protection would not be fleeting.
Industry giant Alcoa has argued that tariffs are the wrong way to address the problem facing domestic smelters, which is low global prices of primary aluminum caused by massive overproduction by China
Tariffs are a frequent topic of conversation here for workers on the factory floor, where work is underway to restart production lines. Greg Lester, who came out of retirement last year to help train new workers being hired at the plant, said he considers it almost a miracle that this mill did not die like all the others he has worked for.
Lester notes that he spent much of his four-decade career helping U.S. companies build smelters in other countries, while smelters back home fell like dominos.
“I’ve been in West Africa, I’ve taught Russians how to make super-pure aluminum,” said Lester. “The only place that didn’t seem to want smelters was the U.S.”
One place where the tariffs are viewed a bit more skeptically is the storefront near Hawesville occupied by United Steelworkers local 9423, which represents workers at the plant.
Andy Meserve, president of the union, said workers have welcomed the investments and new jobs. They recognize that tariffs could hurt other parts of the aluminum industry.
“But it was great for Hawesville,” he said.
(By Timothy Aeppel; Editing by Simon Webb and Edward Tobin)
Comments