Categorized | China, Trade

Trade Enforcement Works – The Aluminum Extrusion Example

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CPA has long said that proper enforcement of the trade laws is necessary, but insufficient.  It is necessary because (1) countries need to play by the rules they agreed to; (2) countries need to play by the rules of the country they are shipping to; and (3) there are many illegal tactics occurring now that have not been addressed or neutralized.

[If you are interested in learning more about trade law enforcement, sign up for the CPA Trade Remedies Webinar, on November 8.  Its free.)

The aluminum extrusion industry faced a flood of imports from China in 2009.  They took action, through the Aluminum Extrusion Council, because there was not a market justification for the imports.  Meaning… foreign state subsidies were the likely cause of the spike.

Their trade case was filed on March 31, 2010; they received a preliminary determination in August , 2010; and received a final determination in 2011.  For those of you who don’t know the procedure of trade cases, when the preliminary determination of countervailing and antidumping duties was made, those duties were actually applied to imported aluminum extrusions.  The duties are calculated to neutralize the subsidies.

You can see the result below.

When the Chinese subsidy advantage was neutralized, the Chinese could no longer compete in our market.  But for this trade case, our American aluminum extrusion industry risked becoming a historical footnote.

The U.S. is the low cost producing country for steel and many other products… especially when you take transportation costs to the customer into account.  The graph suggests that we are the low cost producer of aluminum extrusions too, because foreign products could not compete without a subsidy advantage.

Those who say the U.S. is a high cost producer are partially, or largely, wrong.  We are highly productive, highly capitalized, and very good at what we do.  Labor costs are a minority fraction of the overall costs of many products.  When you figure the transportation costs of foreign goods, it is usually more than the labor costs.

The lesson is… if we neutralize foreign cheating on the individual industry level (through enforcement) or on the economy-wide level (by addressing currency manipulation, foreign value added taxes, etc.), there are a lot of gains to be made in the domestic market.  Which happens to be the biggest, richest consumer market in the world.

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