In today’s globalized world, trade conflicts leave no winners; cooperation benefits both sides, while conflict harms them all. In developing the domestic nonferrous metals industry, we can take a holistic approach that balances domestic industrial development with the strategic deployment of overseas production capacity. This will enable us to formulate domestic industrial and international trade policies that are well-suited to this new reality. We should also make strategic adjustments to our export destinations and actively tap into markets in South Asia, Southeast Asia, and Eastern Europe, in alignment with the country’s “Belt and Road” initiative.

The escalating U.S.-China trade tensions have significantly dampened market risk appetite, impacting markets ranging from commodities and stocks to foreign exchange. Although, from the perspective of the nonferrous metals market, we believe the substantive impact is relatively limited, it remains essential to conduct a thorough analysis of the trade-related implications of the U.S.-China trade tensions—and their effects on balance sheets. Given that the aluminum industry chain is most heavily affected by trade tensions within the nonferrous metals sector, this article will focus primarily on an analysis of the aluminum industry chain. Below, we will examine the issue from four perspectives: the background and ongoing developments of U.S.-China trade tensions; the trade situation in the U.S.-China aluminum industry; the impact of U.S.-China trade tensions on the aluminum industry; and the broader impact of these tensions on various nonferrous metal varieties.

Background and Monitoring of China-U.S. Trade Friction

After trade tensions eased somewhat in May, on June 15 the U.S. government released a list of goods subject to additional tariffs, imposing a 25% tariff on approximately $50 billion worth of imports from China. Of this amount, tariffs on about $34 billion worth of goods will take effect starting July 6, 2018, while public comments are being solicited on additional tariffs imposed on roughly $16 billion worth of goods. Chinese authorities responded overnight, with the Customs Tariff Commission of the State Council issuing an announcement deciding to impose additional tariffs on $50 billion worth of imports originating from the United States. Subsequently, President Trump stated that the U.S. would impose an additional 10% tariff on another $200 billion worth of Chinese goods. Should China retaliate by raising its own tariffs in response, the U.S. will further impose additional tariffs on another $200 billion worth of goods. Thus, it is evident that trade tensions will not ease easily in the short term and are likely to persist for a relatively long period. During this period, the impact may manifest as phased, pulse-like fluctuations, introducing significant uncertainty into fundamental market assessments.

By tracking U.S. trade protection measures implemented in 2018, we find that these measures cover a wide range of traded products and encompass diverse types of tariff-based protections. From the perspective of traded products, the scope extends beyond bulk industrial commodities such as nonferrous metals to include agricultural products, consumer goods, and high-tech products. From the standpoint of the trade investigations involved, these measures include “Section 232” investigations, “Section 332” investigations, and “Section 301” investigations.

Since trade tensions have the greatest impact on the aluminum value chain within the nonferrous metals industry, we will focus our analysis on the relevant effects on the aluminum value chain. Next, we will first introduce the various investigation methods and their impacts associated with U.S. trade protection measures, which will facilitate a more thorough analysis of their effects on aluminum product trade flows in the subsequent sections.

(1) “232” Investigation

Looking back at the imposition of additional tariffs on U.S. imports of Chinese aluminum products, we need to start with the “232” investigation. The “232” investigation refers to a probe initiated by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962, aimed at determining whether imports of specific products pose a threat to U.S. national security. Within 90 days of the report’s submission, the U.S. President must decide whether to take final measures against imports of these products. The “232” investigation is characterized by its simple procedures, swift arbitration, diverse range of possible measures, and the ability to stack tariffs with all other existing tax rates.

As shown in Table 1, on January 1, 2018, the U.S. Department of Commerce released its Section 232 investigation report, recommending a minimum tariff of 7.7% on imported aluminum and a tariff of 23.6% on products from China. On March 1, 2018, Trump announced that tariffs of 25% and 10% would be imposed on all imported steel and aluminum products, respectively. As a result, the overall tariff rate on aluminum rose to 10%, while the tariff rate on products from China was reduced to 10%. However, it is important to note that these tariffs are levied in addition to all other existing tariffs.

Based on the findings of the “232” investigation, the United States is currently imposing an additional 10% tariff on aluminum products imported from all countries and regions except Australia, Brazil, Argentina, and South Korea. This tariff applies to major unalloyed aluminum products and primary aluminum processed products, including primary aluminum, aluminum plates and strips, aluminum foil, aluminum rods, and aluminum profiles.

(2) “332” Investigation

In addition to imposing additional tariffs on aluminum products, the United States has also imposed anti-monopoly and anti-dumping duties on China. The formulation of these “double anti” tariffs is closely linked to the “332” investigation. The “332” investigation, also known as the “Regular Fact-Finding Provision,” refers to Section 332 of the U.S. Tariff Act of 1930. This provision allows the U.S. International Trade Commission (USITC), upon request by the U.S. President, the House Ways and Means Committee, the Senate Finance Committee, or the U.S. Trade Representative (USTR), to conduct a “regular fact-finding inquiry” into any matter involving tariffs and trade—including the competitive landscape of U.S. industries vis-à-vis those of other countries—and to issue a report. Historically, investigations under Section 332 have often served as an “early warning sign” for the U.S. to initiate future trade remedy measures such as anti-dumping, countervailing, and safeguard actions. On March 15, 2018, based on the “332” investigation, the U.S. International Trade Commission issued a final determination on injury in the case of aluminum foil from China, building upon the earlier final ruling by the U.S. Department of Commerce, which imposed combined anti-dumping and countervailing duties ranging from 55.13% to 176.41% on Chinese aluminum foil (specific details are shown in Table 2). On June 18, 2018, the U.S. Department of Commerce announced preliminary anti-dumping duties of 167.16% on alloy aluminum sheet imported from China.

(3) “301” Investigation

In addition to the two investigations mentioned above and the imposition of additional tariffs, which will directly affect aluminum product exports, although the “301” investigation does not specifically target aluminum products, it will nonetheless impact aluminum usage by affecting exports of high-tech end products. The “301” investigation is commonly referred to as Section 301 of the U.S. Trade Act of 1974. Generally speaking, Section 301 is a legislative authorization provision in U.S. trade law that empowers the U.S. government to take unilateral action against foreign practices—whether legislative or administrative—that violate international agreements and harm U.S. interests. This particular investigation focuses primarily on issues related to technology transfer, intellectual property, and innovation. The investigation’s findings recommend imposing an additional 25% tariff on 1,300 Chinese products, covering items from sectors such as information and communication technology, aerospace, robotics, pharmaceuticals, and machinery.

Trade Situation of the Aluminum Industry Between China and the U.S.

In 2017, China’s total aluminum exports amounted to approximately 4.24 million tons. Based on Antaike’s estimate that electrolytic aluminum consumption in 2017 was about 35.4 million tons, China’s aluminum export share stood at roughly 12%. Among these exports, around 660,000 tons were destined for the United States, accounting for about 15% of the total export volume. Overall, the direct export share to the U.S. is not particularly high—only about 1.86%. Given that current domestic-to-foreign price ratios are currently low, this situation should favor an increase in exports. From this perspective, therefore, the imposition of additional trade tariffs does not appear to have a significant impact on aluminum exports. What is more concerning, however, is the potential expansion of the scope of trade frictions.

Regarding the specific impact on different types of aluminum products, the current additional tariffs are mainly imposed on aluminum sheets, strips, and foil, since China’s exports of aluminum products to the U.S. consist primarily of these three categories.

China’s aluminum exports are highly concentrated, with aluminum sheets and strips, aluminum foil, and aluminum profiles accounting for over 90% of total exports combined. In 2017, aluminum sheets and strips accounted for 49% of aluminum exports, and this proportion has continued to rise in recent years. The second-largest export product is aluminum foil, accounting for 27%, while the third-largest export product is aluminum bars and rods, making up about 20%.

Among these, the specific breakdown of exports to the United States, according to data from the General Administration of Customs, is as follows: In 2017, China exported 502,200 tons of aluminum plate and strip to the U.S., 148,500 tons of aluminum foil, 11,000 tons of aluminum tubes, and 10,100 tons of aluminum profiles, for a total of approximately 660,000 tons. Among these, plate and strip accounted for 75.9% of China’s aluminum products exported to the U.S. and 51.2% of U.S. imports of aluminum plate and strip. Aluminum foil exports represented 22.45% of China’s total aluminum exports to the U.S. and 75.6% of U.S. imports of aluminum foil. From this, it is evident that the U.S.’s imposition of anti-dumping and countervailing duties on China’s aluminum exports is clearly targeted.

According to SMM, since late March, shipments of ordinary aluminum sheet and strip to the U.S. have significantly declined, primarily due to the preliminary ruling on anti-subsidy measures released in April. Based on the combined findings of the “332” investigation and the “232” investigation, China’s aluminum products—particularly aluminum sheet and strip as well as aluminum foil—will be subject to mandatory double anti-dumping and countervailing duties, along with an additional 10% import tariff, depending on the specific product.

Impact of Sino-U.S. Trade Friction in the Aluminum Industry

The China-U.S. trade friction has two main impacts on China’s aluminum industry: First, the imposition of additional tariffs on imported aluminum products; second, the weakening of domestic demand for aluminum in China due to the extra tariffs levied on imported goods.

(1) Direct impact

From the perspective of direct impact, aluminum products exported directly to the U.S. account for approximately 1.86% of total consumption. Currently, the price ratio between domestic and international markets is at a low level, which will favor an increase in exports. Therefore, from this angle, the imposition of additional trade tariffs does not have a significant impact on aluminum product exports.

The U.S. has raised tariffs on aluminum imports, with the core rationale being the country’s growing reliance on imported aluminum products. According to data from WBMS, in 2017, U.S. aluminum production stood at only 740,000 tons—less than 30% of the level recorded a decade earlier. Last year, however, U.S. aluminum imports exceeded 6 million tons, meaning that the country’s reliance on imports for aluminum supply reached as high as 88.9%, and this proportion continues to rise. The aluminum products the U.S. imports primarily consist of primary aluminum and semi-finished aluminum products. Taking U.S. aluminum supply in 2017 as an example, the country imported 4.745 million tons of primary aluminum from its major source countries. Due to aluminum’s unique physical properties, it is widely used in industries such as transportation, construction, power generation, and mechanical manufacturing, and has long served as a critical material in key national sectors including defense, military industry, aerospace, and other strategic fields. Therefore, the increasingly high degree of import dependence poses certain potential risks to what the U.S. calls “national security.” By imposing additional tariffs on imported aluminum products, the U.S. government aims primarily to stimulate the recovery of its domestic aluminum industry and enhance the resilience of the U.S. aluminum smelting sector against various risks.

As for China’s aluminum exports, the export of primary aluminum is subject to an additional 15% tariff, indicating that our country does not support the export of primary aluminum. However, exports of value-added products such as aluminum alloys—products that have undergone processing—are eligible for certain tax rebates; thus, exports are primarily in the form of aluminum alloys. Although the shadow of trade tensions continues to loom large, the low Shanghai-London aluminum price ratio has nonetheless spurred a substantial increase in export orders, particularly for formal aluminum products and disguised aluminum exports outside the U.S. Customs data show that in April, exports of unwrought aluminum and aluminum products exceeded 450,000 tons, remaining virtually unchanged from the previous month. In May, exports reached 485,000 tons—the highest level since December 2014.

Moreover, the supply gap in the overseas aluminum market remains evident, and uncertainties persist. Specifically, the shutdown of Hydro’s alumina plant in Brazil continues unabated. Given the mismatch between supply and demand, the reduction in overseas alumina supply will affect the availability of raw materials for primary aluminum production. Last year, Hydro’s Brazilian alumina plant produced 6.4 million tons of alumina; this year, it plans to cut its capacity by half, resulting in a loss of 3.2 million tons of alumina production. Furthermore, the Russian Aluminum (Rusal) issue could still escalate once again. Although the U.S. Treasury Department indicated that the U.S. would extend the suspension of business under sanctions against Rusal until October 23, it did not explicitly state that the sanctions would be lifted. Currently, Rusal has an electrolytic aluminum capacity of 3.9 million tons, an alumina capacity of 10.5 million tons, and an aluminum foil capacity of 90,000 tons. In 2017, Rusal’s electrolytic aluminum output was 3.707 million tons, with sales reaching 3.955 million tons. If, by the end of the third quarter, Rusal still hasn’t secured a decision from the U.S. to lift or further postpone the sanctions, overseas electrolytic aluminum prices could rise again. As a result, the Shanghai-London ratio is expected to fall once more, thereby boosting domestic exports of aluminum products.

Therefore, China’s aluminum exports are expected to increase year-on-year within the year, and the U.S.-China trade war is unlikely to have much of an impact on China’s aluminum exports.

(2) Indirect effects

From the perspective of indirect impacts, in 2017, China’s total exports to the U.S. amounted to 506 billion U.S. dollars, of which electronics accounted for 26.9%, medical devices for 6.4%, and televisions and monitors for 4.5%. These products, to varying degrees, require aluminum components for assembly. If the U.S. imposes additional tariffs on these products, it could affect their exports, thereby transmitting ripple effects to the aluminum industry and potentially having a certain impact on the end-use consumption of primary aluminum.

On the other hand, the impact is primarily reflected in China’s domestic macroeconomy. However, we believe that China is well-positioned to mitigate the adverse effects of the trade war on its domestic macroeconomy. Specifically, looking at domestic aluminum consumption, the end-use industries for aluminum include real estate and construction, transportation, power generation, and packaging. Since the beginning of this year, construction sites for real estate and infrastructure projects have been steadily resuming operations, grid construction has been progressing smoothly, and the country’s “Rural Revitalization Strategy” is being implemented effectively. Coupled with the growing trend toward lightweighting in the automotive industry, we expect that demand for primary aluminum from the real estate, infrastructure, and automotive sectors will continue to provide some support. In the automotive sector, although the growth rate of automobile production has gradually slowed down, we remain relatively optimistic about the growth in aluminum consumption by the automotive industry. First, given the years of high growth in automobile production and sales, the base figure for year-on-year comparison has become significantly larger: in 2017, annual automobile production reached 29.07 million vehicles, an increase of 1.07 million vehicles compared to the 28 million vehicles produced in 2016. Second, the demand for aluminum alloys driven by vehicle lightweighting continues to support robust growth in aluminum consumption within the automotive industry. Similarly, in the real estate sector, indicators such as real estate development investment and newly started housing area remain on a steady growth trajectory, which will effectively boost downstream aluminum consumption.

From the perspective of consumption structure, unlike Japan in the 1980s, China enjoys a unique demographic advantage. With a population exceeding 1.4 billion, China possesses enormous consumer potential. Even without relying on export-driven growth, China’s economy remains well-positioned to sustain stable growth. Over the past 40 years of reform and opening-up, industrialization has propelled China’s economic rise; however, domestic consumption has lagged behind. Encouraging domestic consumption not only enables Chinese citizens to share in the fruits of economic growth but also helps China better cope with U.S. trade tensions—and even a full-blown trade war. China has the potential to become a new global consumption hub, and accelerating urbanization is one of the key pathways for boosting consumption. Currently, China’s urbanization rate, calculated based on the resident population, stands at only 56.8%. Over the next 30 years, more than 20% to 30% of China’s population will settle in urban areas. This robust domestic demand can reduce China’s reliance on external demand, fostering rational and higher-quality growth for the domestic economy. To shift from being an export-oriented giant to a consumption powerhouse, China needs to pursue reforms and innovations—including further urbanization, supply-side structural reforms, possible tax cuts, and greater liberalization of imports.

The impact of U.S.-China friction on other non-ferrous metals.

Zinc:

China’s exports of zinc ingots are relatively small; from January to March 2018, the cumulative export volume totaled only 3,500 tons. Over the past four years, the average monthly export volume of zinc ingots to the United States has been around 300 to 600 tons. Given the very modest scale of zinc ingot trade between China and the U.S., this round of trade tensions has had virtually no impact on zinc ingots or zinc alloys. A slightly larger export volume is seen in galvanized steel sheets: in 2017, China exported 9.32 million tons of galvanized steel sheets, primarily to countries such as South Korea and Vietnam, with exports to these two markets reaching 1.35 million tons and 1.15 million tons, respectively. In 2015, China exported 600,000 tons of galvanized steel sheets to the U.S.; however, that same year, representatives from U.S. steel companies petitioned the U.S. Department of Commerce to launch an anti-dumping and countervailing duty investigation into China’s galvanized steel sheet industry. Since then, export volumes have steadily declined. Galvanized steel sheets are mainly used for automotive body panels. Now, China has imposed an additional 25% tariff on automobiles imported from the U.S., meaning that after July 6, the actual tariff rate on U.S.-made vehicles will rise to 40%. It is expected that the impact of the trade war on zinc will likely be felt indirectly through its effects on finished automobiles.

Copper:

China is a net importer of refined copper. In 2017, China exported 338,000 tons of refined copper, accounting for only 3.8% of its domestic production; it also exported 478,000 tons of copper products, representing just 2.5% of the nation’s total output. In downstream consumption, U.S. imports of electrical and electronic equipment from China accounted for 7.5% of China’s total exports in this category. In 2017, China’s automobile exports represented 2.9% of its domestic production. Taking into account the proportion of U.S. imports relative to China’s exports, the maximum impact on China’s production shares was 1.89% and 0.55%, respectively. Therefore, overall, the Sino-U.S. trade tensions have had little substantial impact on copper prices.

Nickel:

The U.S.-China trade war has had a relatively mild impact on downstream nickel consumption in China, taking the stainless steel industry as an example. In 2017, China’s stainless steel exports totaled 3.95 million tons (accounting for roughly 15% of China’s total production), with exports to the U.S. accounting for only about 1.5%. The U.S. produces 2.754 million tons of stainless steel, and it can easily offset the shortfall in Chinese imports by increasing its own production. As for the potential impact of additional U.S. tariffs on imported goods on weakening domestic demand for stainless steel in China, this is mainly reflected in a certain degree of suppression of stainless steel usage in key tariff-increased product categories such as electronic products, medical devices, and televisions, which in turn affects annual domestic stainless steel consumption and subsequently impacts nickel demand. However, given the confirmed supply gap for both domestic and overseas primary nickel throughout this year, nickel prices remain firmly on an upward trajectory in the long term.

Currently, the United States is considering imposing additional tariffs of up to 400 billion U.S. dollars on Chinese imports, whereas China’s total imports of U.S. goods for the entire past year amounted to only 130 billion U.S. dollars. It will be worth watching how China responds next. In today’s globalized world, trade conflicts leave no winners—cooperation benefits both sides, while confrontation harms them all. The deterioration of U.S.-China trade relations will not only hurt China itself but also harm U.S. allies such as Canada and Western Europe, as well as U.S. businesses themselves. As international trade tensions continue to escalate and become more systemic in the future, China should, at its own steady pace and with the people at the center of its policies, firmly advance reform and opening-up to address the growing gap between the people’s ever-rising material and cultural needs and the backward state of social production. China must resolutely implement supply-side structural reforms, pursue high-quality economic development, and accelerate the building of a modern Chinese economic system. Meanwhile, in developing the domestic nonferrous metals industry, China can take a holistic approach that balances domestic industrial development with overseas production capacity deployment, formulating domestic industrial and international trade policies that are well-suited to this strategy, strategically adjust export destinations, and actively tap into markets in South Asia, Southeast Asia, and Eastern Europe, in alignment with the country’s “Belt and Road” initiative.