Editorial | Trump’s tariffs bury Alpart

Any assumption that Donald Trump’s trade wars are far-off affairs that will have little direct impact on Jamaica is wrong.

Seven years ago, during his first presidency, Mr Trump’s initial salvo of tariffs against Chinese aluminium, plus his geo-political posture against Beijing, effectively killed plans for the redevelopment and expansion of the Alpart alumina refinery at Nain, St Elizabeth.

Now, Mr Trump has all but buried it, without likelihood of its resurrection. At least, not in the near future.

The clear signal to Jamaica, as this newspaper has advised since Mr Trump won the US presidential election last November, is the urgency of strategic thinking about its economic path, while creating alliances with other vulnerable countries, starting with its partners in the Caribbean Community (CARICOM), and others in the global south.

Kingston will likely find that it won’t be a good end if it slinks unobtrusively to a dark corner, quietly seeking carve outs from the Trump administration. To again repeat the maxim attributed to Benjamin Franklin: “We must all hang together, or assuredly we shall all hang separately.”

Donald Trump is a cross between a 19th century Greater Power leader and 21st century mercantilist, who believes that tariffs and the wealth of the American market can be wielded as cudgels or to ramrod manufacturing production back to the United States, and open other countries’ to its exports.

TARIFF FIGHTS

So, he has picked tariff fights with America’s biggest trading partners, Mexico and Canada, which, with the United States, are parties to the US, Canada and Mexico (USMCA) trade pact that accounts for US$1.2 trillion in annual trade. That is nearly 30 per cent of global trade.

Since returning to office, Mr Trump has all but up-ended the USMCA (which he negotiated in 2019), imposing a 25 per cent tariff on most imports from Canada and Mexico, ostensibly because he was dissatisfied with their efforts to stop the flow of illegal migrants and the psychotic drug, Fentanyl, into the United States. Similar tariffs have also been imposed on the European Union (EU) and the US president has pledged to move onto the countries.

Then last week, he went further. Mr Trump dispensed with exempt countries and increased the 10 per cent tariff he imposed on aluminium and steel in 2018, to 25 per cent.

But for China, the increase was 20 percentage points on the 25 per cent that was imposed in 2018. So, the tariff on Chinese aluminium and steel is 45 per cent.

This, effectively, is the burial of Alpart, a 1.6 million tonne capacity refinery that is owned by Jiuquan Iron and Steel Company (JISCO).

China produces nearly 60 per cent of the world’s aluminium – around 42 million tonnes of the metal in 2023. In the United States, the one time world leader, output was a mere 860,000 tonnes.

The smelting of aluminium starts with the mining of bauxite, of which Jamaica is a producer. Bauxite is refined into alumina, which is smelted into aluminium.

This process of turning raw bauxite into alumina happens at facilities like the refinery at Nain, on Jamaica’s south coast. Alpart, however, but for a period between 2016 and 2019, has been idle for the past 16 years. It was initially shuttered in 2009, during the Great Recession.

LESS-EFFICIENT

Alpart was then owned by Russian Oleg Deripaska’s UC Rusal group. Like other refineries on the island, mostly built in the 1960s and ’70s, Alpart is less-efficient, producing at high-costs, than its global peers. Jamaica’s high energy cost is a major contributor to this.

What has translated to in the global industry is Jamaica’s alumina refineries being so-called swing producers. In the good times, when demand is high and the prices are good, they go hell for leather.

But when markets are soft, they essentially support the output of other global facilities, rather than being production leaders in themselves.

In 2016, at the tailend of a spurt in Chinese investment in Jamaica, JISCO, one of China’s metals majors, bought Alpart for US$299 million. JISCO’s reported intention was to spend up to US$3 billion, to upgrade and expand the plant, including investing in new energy sources, which would allow going upstream into aluminium smelting.

At the start, though, Alpart’s alumina would go to smelters in China.But in 2016 Donald Trump also won the US presidency. Two years later, as part of a hawkish posture towards China, an economic and geopolitical rival of the United States, Mr Trump imposed higher tariffs on Chinese aluminium.

Those tariffs were kept by Joe Biden, who, if anything, toughened Mr Trump’s policies against China.

In 2019, with alumina markets sluggish, and Apart’s production costs running significantly higher than the price of the commodity, JISCO closed the plant. That was supposed to be a temporary move while the company considered its investment plans.

The more likely reality is that faced with higher US tariffs and the shifting geopolitical environment, JISCO decided to cut its losses on Alpart.

These are issues that Jamaica has to take into account in its strategic planning. That requires a new kind of thinking.