Want to Lose the Trade War? Implement the APEX Act

December 18, 2019 Updated: December 22, 2019

Commentary

At this critical moment, when the White House is on the cusp of a breakthrough in the years-long trade spat with China, a bill making its way through Congress threatens to hamstring U.S. progress.

The Trump administration is looking to strengthen U.S. metalworking industries through the use of tariffs on cheap, imported Chinese goods. These tariffs have been an essential part of the administration’s trade war strategy. Exchanging short-term discomfort for long-term gain, tariffs allow the president to prevent China’s manipulative and underhanded dumping of cheap aluminum. Under the president’s plan, these taxes on Chinese goods are a fundamental component of America’s ongoing negotiation strategy.

But the Aluminum Pricing Exemption Act, or APEX Act, would stymie that effort. The bill seeks to implement what is tantamount to price controls on aluminum. It’s a move that would lower domestic aluminum prices and strip the industry of its ability to profit from the sale of its products. In doing so, the APEX Act would render moot the beneficial effects of the president’s tariffs.

Effectively, the APEX Act would provide the government with more authority to control the price at which contracts for aluminum are negotiated. This would rob aluminum workers of profitability and saddle them with the costs and inconvenience of complying with bureaucratic fiat. As the profits of U.S. aluminum suppliers fall, American production will decline—driving aluminum customers to source aluminum from China.

Although well-intentioned, the APEX Act would peel away an important point of leverage the president and his staff have when negotiating such a high-stakes agreement—and for what? The bill would briefly assuage the industries ailments—and then accelerate them.

In other words, the APEX Act would prove a windfall for China. In addition to harming American metalworkers, the bill signals that U.S. leaders don’t view tensions with the communist state as a worthy reason to let market forces work their competitive magic. Passage of the act would burn an important card in the negotiators’ deck at a time when the Trump administration needs all the leverage available to it to strike a trade deal and hold China accountable.

Epoch Times Photo
A Chinese worker moves aluminum pipes at the Qinghai Guoxin Aluminium Industry Incorporated Company workshop in Xining, Qinghai Province, on Aug. 20, 2010. (Feng Li/Getty Images)

It’s imperative that the Trump administration has all the leverage it can muster while finalizing the deal, as a comprehensive agreement with China has far more potential to rescue the aluminum industry than whatever temporary measures are offered by the APEX Act.

For decades, China has engaged in the practice of dumping cheap steel and aluminum, making it difficult for domestic producers to compete. This practice was radically increased two years ago, at the start of the trade war, ostensibly to make swing state voters in the Midwest feel the pain before heading to the polls in 2018 and 2020.

The administration has made dumping a top-tier issue, citing it as one of the reasons for imposing tariffs in the first place. Given enough strength, the administration might just be able to negotiate an end to dumping.

Proponents argue the APEX Act would return some power to the legislative branch. But the bipartisan agency that would set aluminum prices, the U.S. Commodity Futures Trading Commission (CFTC), consists of five commissioners appointed by the president (i.e., the executive branch), with merely the advice and consent of the Senate.

Others argue that having the federal government fix the price of aluminum would save U.S. jobs. In reality, it would poison them. Should the APEX Act become law, it would do little to address the issues that caused the domestic aluminum industry to decline in the first place. Most economists agree: Without deep structural reforms, the aluminum industry and others like it will either shutter or relocate abroad.

The APEX Act offers nowhere near what is required to save the industry. It would offer only some aluminum buyers a fleeting reprieve from their ailments.

The bill would institute additional government bureaucracy within the market, substantially decreasing producers’ efficiency and economic viability at precisely the worse time. Although industry and finances are central to U.S.–China talks, the ongoing trade negotiations aren’t solely a question of economic policy; they also represent a clash of ideas.

As Xi Jinping, leader of the Chinese Communist Party, commands his ministers in a unified front against the United States during the trade disputes, Xi is looking for cracks in the U.S. leaders’ resolve—and U.S. industry’s ability—to compete with China. The APEX Act is such a crack.

The stakes for U.S. industry are too high to saddle aluminum producers with draconian price controls that will give China leverage over Trump, send American dollars to China, and relocate U.S. jobs to China. Congress should bury the APEX Act in the mine from which it crawled.

Alexander Thilmany is a research assistant at the Victims of Communism Memorial Foundation in Washington.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.