It is posited that in fact it is clear - in the article no less!
>In Mexico, Mr. Shen was implementing an audacious plan, according to people familiar with the matter: A network of trading companies could route hundreds of thousands of tons of aluminum from China to Mexico, where a plant would melt it for shipment to the U.S., evading trade restrictions and claiming North American Free Trade Agreement benefits.
> Meanwhile, setbacks were piling up. Trucks and metal were stolen from the Mexico facility, slowing deliveries, former Aluminicaste employees say. The company failed to obtain Nafta benefits after U.S. authorities concluded that the metal came from China.
And why is that a problem, exactly? In the end aluminum is fungible for aluminum, and the US is getting aluminum from Mexico under NAFTA. Trying to enforce a tariff on element production from a subset of external countries seems sisyphean.
But there are essentially no tariffs any more. Not sure how NAFTA changed that. But assuming its true: aluminum is fungible as mentioned. Providing more to Mexico means they can export more of their own to the US.
If China is greatly subsidizing the aluminum production then then how will US producers compete?
It's in the US's interests that they don't allow another country to manipulate the market to destroy the US production capacity. Once that capacity is online the foreign country can then raise prices.
It's not easy or cheap to bring production capacity online.
It could be well within the Chinese government agenda to have broader control over global productive capacity. Impossible to prove, I know.
Generally I'm pro-free trade, but the issue gets quite messy when you consider government subsidies. As a Canadian, this discussion comes up frequently along the lines of the subsidized agriculture sector.
Worse still, China could actually start enforcing their restrictions on exporting raw aluminium and drive non-Chinese manufacturing industry out of business by cutting off their supply of feedstock, as they also tried to do with rare earth metals.
The simple version: If a foreign government is unfairly subsidizing an industry, America will slap a tariff on it. This is good policy - imagine, for example, if Airbus could afford to sell their planes for $1, because they are being entirely subsidized by the French government. Everyone buys airbus, no one buys Boeing any more. Boeing(along with tens of thousands of jobs) goes bye bye, and now Airbus starts selling their planes for whatever they want, because there is no competition left.
So, that's what China was doing - they were giving this aluminum company tons of money, and it allowed them to produce and sell aluminum for far cheaper than should be possible. So America put a tariff on importing that aluminum from China.
Instead, they sent it to Mexico, and then pretended that the aluminum came there when shipping it into America. No more tariffs!
To play devil's advocate, can someone provide a single historical example of a case where dumping "worked," in the sense that one country's manufacturers were able to rake in large profits after their foreign competitors went out of business due to subsidies?
Because unless dumping actually succeeds at that goal, and I don't see any evidence that it does, it seems indistinguishable to American consumers from a huge technical advance in a foreign country lowering the cost of some import--yes, it may be detrimental to domestic producers, but it's a huge benefit to domestic consumers and a net benefit overall.
Greed by American companies outsource to low cost countries played a part too. The owners of the mines would rather buy and operate mines in low cost countries. It isn't simply the case that evil foreign government sets up a mine and dumps the raw material; often they allow the owners of existing mines in the West to buy concessions to operate them because then the country receives the expertise and a profit at the expense of the workers in the West. But, the Western owners of the Western mines make even more profit, at least in the short term.
Sometimes US firms go out of business when they compete with foreign firms. Even if that's because of "unfair" subsidies from foreign governments, that's indistinguishable from some foreign technological improvement that allows competitors to produce their goods more cheaply than US firms. I'm specifically asking for evidence of the followup: the part where foreign firms have no competition and rack up massive profits at our expense.
Note that this trick is very hard to pull off in the long-term. China tried it with rare-earth metals, and production just started up elsewhere. In the short term it's annoying and causes disruptions.
It isn't very hard to pull off dumping, it's game that's been played for centuries. That's why all modern governments disallow it. China especially does it all the time, here's an example with solar: http://www.nytimes.com/2014/12/17/business/energy-environmen... .
> the companies were selling products below the cost of manufacture and that the Chinese companies were benefiting from unfair subsidies from their government.
I assume Foxconn does not get subsidies to sell iPhones below cost :)
I just don't understand how easy it is to determine the cost of manufacture something outside of one's economy and infrastruture.
I'm in Argentina at the moment and I'm constantly hearing local businesses accusing china of dumping because they can't produce more cheaply, but than everywhere else in the world we buy Huawei, Xiaomi, etc I feel that accusations of dumping are more political interpretations than measurable facts.
I understand. But how do we know the real cost when the country we are talking about is China? Even in transparent economies like the EU, you find convoluted ways to subsidize companies (or convoluted ways to accuse companies of receiving subsidies - depending where you stand in these issues)
Because they aren't being convoluted about it, their costs and subsidies are very obvious. They are simply losing money and keeping the mills going via state guaranteed debt (well, the banks are being ordered to lend).
I think the rare earth mines that tried starting up again were promptly driven under by China. For example, Molycorp (which started up production at the Mountain Pass mine in the US) was driven into bankruptcy a year ago soon after reaching full production. Not a bad deal for China at all - they got an almost decade-long monopoly on manufacturing using rare earth metals, which they can probably continue now, and those that tried to break their monopoly suffered massive losses.
Wait, what about the part where everyone buys cheap Airbus planes and hedges them for when the price goes up? At some point, Airbus has to sell them for a profit, and it's at that point that people start selling their stockpiles of cheaply-bought Airbus planes. They could sell it for anywhere between $1 and whatever the price Airbus will eventually want to charge, and still make a profit, while simultaneously taking away all profit from Airbus.
And in the above scenario, Boeing is also someone that could buy those cheap Airbus planes. I know, it's a contrived scenario, but I think it illustrates the point.
In the case of aluminium being subsidized by the Chinese government, same thing. The entire world, including America, get's to benefit from cheap Aluminium. You could argue it's a relatively direct subsidy by the Chinese government to all Aluminium consumers. The Chinese government, and their subsidized aluminium producers will not be getting that money back. And really, all they're essentially buying is a temporary halt on competition. As soon as they monopolize the market, and attempt to abuse it, competitors will start appearing and they're back to square one. With a large capital deficit and negligible profits from the exercise.
Alternatively, you get protectionism via tariffs. One could argue that that is a form of punishment on all the consumers of the tariff-ed good, or consumers of goods that are made from the tariff-ed material. The consumers pay more, and the government get's extra tax revenue. Does it buffer, and protect local industries from turbulent and cheap foreign markets? Sure, but that's at the cost of the consumers again. Really, the only winner is the state's coffer.
You are ignoring costs, expertise, and time it takes to get production ramped up.
Let's say Chinese aluminum makers control the market and puts all other aluminum ventures out of business, and then raises the price until they don't need a subsidy and make a healthy profit.
Ok, so now someone else can jump in the aluminum game. Why would they do that if they knew that China could immediately put them out of business by turning the subsidy back on. Who would invest their money in that venture?
That's what I was thinking. If China wants to subsidize American manufacturing by selling us cheap aluminum, what's the problem? This is is bad if you're part of the tiny American aluminum mining and extraction business, but it's probably pretty fantastic if you're part of the huge and important industries making anything with aluminum, like cars and airplanes.
Why do we want to protect primary industries when historically there's been so much more money in secondary industries?
Of course, one could argue that those of us in the US are in fact the British Empire, the narrative slightly complicated by that civil war period of 1776-1812 of course.
Sounds like he's already been hit where it hurts. If his fortune is ~$3b and the stockpile is ~$6b, then he's losing a ton of money every day to interest and opportunity cost and shipping it back to Vietnam and however much the price has fallen since he bought it all, which could be a large fraction. Given how his partners have the knives out for him, he may not even have that $3b. One can stockpile, but as always, how does one bury the body?
Heh, well, depends on whether or not the material was hedged in and how much flat price risk he took. He may very well have caught the market at a good time and storage/carry costs in Mexico should be low.
