Alcoa, one of the largest American manufacturers of aluminum, is asking the government for relief from tariffs that were supposed to help American aluminum manufacturers.
It turns out that businesses that make aluminum also have to buy things made of aluminum—and those purchases are now more expensive, thanks to Donald Trump's 10 percent tariff on aluminum imports.
Alcoa filed five requests for tariff exemptions with the Commerce Department this week, Bloomberg reports. Three of those requests are for types of aluminum that the company says are not available from American suppliers, and two are for aluminum products that are not produced in sufficient quantity by domestic sources. The Pittsburgh-based company wants exemptions so it can import those products and components from a Canadian subsidiary.
Higher production costs created by tariffs have already forced Alcoa to lower its 2018 profit projections. "The company said in its second-quarter earnings report that it incurred $15 million in costs on material shipped to the U.S.," Bloomberg notes in a separate article.
Alcoa's request for protection from Trump's protectionism reveals one of the critical flaws in the White House's plans to use tariffs to boost domestic production of aluminum (and steel, on which the administration has placed a 25 percent tariff): There simply isn't enough American-made aluminum to satisfy the demands of American aluminum-consuming businesses.
"Even if all the curtailed smelting capacity in the U.S. was back online and producing metal, the United States would still need to import the majority of its aluminum," Tim Reyes, president of Alcoa's aluminum operations, tells The Wall Street Journal.
But the point of the tariffs is to create demand for more domestically produced aluminum, right? Trump has repeatedly claimed that the tariffs are already reinvigorating American steel factories. "Tariffs have had a tremendous positive impact on our Steel Industry," he tweeted this week. "Plants are opening all over the U.S., Steelworkers are working again." Surely the president believes the same will happen for aluminum. If there isn't enough supply, investors will spend to build more aluminum and steel plants here.
Except that's not what's happening.
"In the short term, tariffs are more likely to bring older, relatively inefficient steel plants back online than to stimulate new long-term investments, for the simple reason that the president could withdraw the tariffs at any moment," Soumaya Keynes writes in The Economist.
Trump's unpredictable trade policies are unlikely to give investors the confidence required to build more steel or aluminum plants in the U.S., and expanding production domestically would duplicate operations that are already set up and running in other places. Rather than spending to build more production here, companies like Alcoa are looking for ways to get around the tariffs or will end up having to absorb—and pass along to consumers—those higher costs.
Start your day with Reason. Get a daily brief of the most important stories and trends every weekday morning when you subscribe to Reason Roundup.