China Issues Warning to US Over Aluminum Dispute

China had strong words for the US after the country made a preliminary decision to propose trade tariffs on aluminum foil imports from the Asian nation.
The US Department of Congress issued the preliminary decision on Tuesday (August 8) following an investigation that determined that Chinese aluminum foil producers benefit from subsidies of up to about 81 percent. The US has argued that these subsidies disadvantage American aluminum foil producers, and the decision has been applauded by the US-based Aluminum Association.
A statement posted on the WeChat account of the Chinese Ministry of Commerce after the preliminary decision was announced says that the US government ignored offers of cooperation from the government and Chinese companies.

It goes on to say that the US has no grounds on which to accuse Chinese aluminum companies of benefiting from subsidies, and explains that the US government has made similar claims about China’s banking sector in the past. Reuters reports that the statement was attributed to Wang Hejun, head of the Trade Remedy and Investigation Bureau of China’s Ministry of Commerce.
On Tuesday, aluminum was trading above $2,000 per tonne for the first time in almost three years; however, gains have been widely attributed to China’s efforts to cut its aluminum production capacity, not the dispute between the US and China.

US/China tension growing

The preliminary decision is just one part of growing disquiet between China and the US. In a July interview, American lawyer, author and economist Jim Rickards discussed the Trump administration’s Section 232 trade probe on Chinese steel and aluminum imports. The probe concerns allegations that Chinese imports of those products are a threat to US national security; it is unrelated to the American government’s preliminary decision on aluminum foil imports, but arguably does nothing to ease tensions between the two nations.
Rickards said “a trade war is coming,” and noted that the only reason the US government has delayed introducing tariffs on China is “because the president was trying to get Chinese help with the North Korean situation and that took some months to resolve. It’s now clear that China either is not able to help or is not willing to help. Either way it doesn’t matter. China is not going to help us with North Korea.”
The relationship between the US and North Korea made headlines this week after a leaked US Defense Intelligence Agency assessment concluded that North Korea has developed a miniaturized nuclear warhead that can fit on missiles. Trump said on Tuesday that if North Korea continues to escalate the situation, it “will be met with fire, fury, and, frankly, power, the likes of which the world has never seen.”
North Korea conducted test launches the next day, and leader Kim Jong-un has threatened to launch a missile near the US island territory of Guam. South Korean analysts say the plan includes room for compromise because the missile launches will not be ready until later this month.

While China has advocated for the dispute to be resolved with discussions, it has compromised by adopting UN Security Council sanctions against North Korea, which were passed in a resolution on Saturday (August 5) in response to the country’s long-range ballistic missile testing in July. In a statement released on Monday (August 7), Geng Shuang, the spokesperson for China’s Ministry of Foreign Affairs, commented on the sanctions.
Shuang said, “China has always maintained that the Korean Peninsula issue should be settled through dialogue and negotiation,” and called for the suspension of nuclear and missile activities by North Korea and the suspension of military exercises by the US and South Korea. China is North Korea’s largest trading partner, and the sanctions bar exports of coal, iron, iron ore, lead, lead ore and seafood products.
Despite those statements, the US continues to seek China’s help in dealing with North Korea, and on Thursday (August 10), officials told Reuters that a US navy destroyer traveled within 12 nautical miles of an artificial island in a disputed area of the South China Sea. The action demonstrates that the US does not recognize China’s claim over the disputed territory, which is also contested by Brunei, Malaysia, the Philippines, Taiwan and Vietnam.
China’s Ministry of Foreign Affairs said the operation violated international and Chinese law and was harmful to Beijing’s sovereignty and security. In a statement, the ministry said, “China is very displeased with this and will bring up the issue with the US side.”
In a note quoted by the Financial Post, Citibank analysts state that China, Japan and North Korea account for 84 percent of global iron ore demand, 54 percent of LNG demand and 52 percent of coking coal demand. They say that if the current conflict escalates, Japan and South Korea will be hardest hit due to their proximity to North Korea. 

Chinese aluminum firms preparing to take action

It’s clear that many factors are currently at play between the US and China, with the preliminary decision on aluminum foil import tariffs being one of the latest developments. It’s uncertain how it will eventually pan out, but a number of companies are reportedly planning to take legal action.
Some Chinese aluminum foil producers are preparing to mount a legal challenge against the preliminary decision, sources told Reuters. The China Nonferrous Metals Industry Association is allegedly leading the case, which includes 12 firms and will be filed with the US International Trade Commission. An official from Loften Aluminum told the news outlet that the firm will face anti-subsidy duties on its US aluminum foil exports of 80.97 percent if the subsidies are implemented.
The US Department of Commerce is expected to issue its final decision on the matter on October 23, 2017.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.