Below is our translation of an article from rueconomics.ru showing how the sanctions thoughtlessly slapped on Russian aluminium producer Rusal cost the US aluminium industry big time. Commentary is by Vince Dhimos.
Trumponomics is the economic doctrine teaching that the US economy depends on destroying the competitor, not on surpassing it as in classical economics. This is generally done by dirty tricks, such as pretending that the competitor did something unfair or illegal and then pretending to have legal jurisdiction to impose draconian measures against it. Take China, for example. The US accuses China of stealing technology and uses this allegation to harass Huawei, eg, by illegally arresting its chief financial officer. I say illegally because Meng Wanzhou was never accused of a crime. Yet China is the first country in the world to introduce 5G technology. So if they are the only ones who have it, whom did they steal if from, pray tell? Trump didn't invent Trumponomics, he just took it to a higher level of sleaze. I say if the US economy can't succeed by playing fair, then it is just a matter of time before the US becomes a banana republic. Arresting Chinese citizens or sanctioning Russian aluminium companies doesn't add to GDP. The below translation shows it can even seriously hurt US companies.
A week after the sanctions were slapped on Russian primary aluminium producer Rusal, industry experts at Rusal warned that they would hurt the US aluminium industry. There may be an underlying reason for this that even the producers – let alone the US government – are loath to talk about.
You see, like all primary Al, the Russian-made primary aluminium is produced by a process known as the Hall–Héroult process, which uses a high electric power source to electrolyze aluminium oxide (alumina) into pure aluminium in pots, ie, carbon-lined steel containers. This is generally referred to as smelting. For many years this process has been used, often in rural areas, in various parts of the world. It was discovered in the 1930s in India that due to the fluoride released in this production process, workers as well as people and animals outside the plant for miles around were contracting fluorosis, with effects ranging from mild to extremely severe and crippling, particularly on the bones. In one country where the people suffered extreme ill effects, the authorities actually levelled criminal charges against the foreign CEO of the smelter.
Perhaps it is because of this health hazard inherent in primary Al production that much of the aluminium ingots used in secondary production (rolling, extrusion, forging, casting, machining, fabrication, etc) are not made in the US or Europe. This list of Al smelters is intriguing. As we see, there are well over 100 Al smelters in China, which has the most by far. Five have outputs of roughly a million tonnes or more annually. I counted 18 in Russia, at least 4 of which produce over a million tonnes/yr and one other puts out 750,000 tonnes. Rusal has several in remotest Siberia (eg, Krasnoyarsk and Novokuznetsk). The biggest producers on US soil do not exceed 280,000 tonnes, probably to minimize the health impact of the exhaust gases. Al smelters now have tall stacks that carry away the toxic vapours high into the atmosphere. The stacks are provided with so-called scrubbers, which use trickling water to adsorb the toxic fluorine contained therein. This removes the toxin to relative safe levels for the plant workers and surrounding residents and livestock. The fluoride accumulating as a by-product is sold to toothpaste manufacturers and to municipalities that use the toxin in micro-amounts in a controversial measure to “protect” the teeth of the users. But the liability from fluorine exposure is still an issue in the smelters and this could explain their location in far-flung regions and the fact that the US cannot produce enough for secondary production needs.
The aluminium industry warned the public just a week after the sanctions on Rusal went into effect that they would hurt the US industry. Sure enough.
I don’t know if I can agree with the expert in American area studies quoted herein, who blames the Rusal sanctions solely on the US Congress, exonerating President Trump and claiming Trump knows more about sanctions effects than Congress. Given Trump’s penchant for punishing competitors of US businesses in ways that backfire spectacularly, I find it hard to believe that he was opposed to the Rusal sanctions. (His tariffs on Chinese imports, intended to lower the trade deficit, in fact led to the highest trade deficit in US history).
Rusal demonstrated to the world the failure of US sanctions policy
1 April 2019
Rusal’s resumption of aluminium supplies to the United States and Europe is a logical consequence of Washington’s ill-conceived sanctions initiative. Vladimir Vasiliev, Chief Researcher at the Institute of USA and Canada Studies, Russian Academy of Sciences, commented on this to FBA Ekonomika Segodnya.
“The whole story of American sanctions against Rusal, which lasted for almost a year, became a vivid example of an extremely ill-conceived US policy. On the day the restrictions on the Russian company were introduced, the share prices of American aluminium companies collapsed. The sanctions on the supplier from the Russian Federation dealt a powerful blow to the entire branch of the US economy. But the administration of Donald Trump did not recognize this as its mistake at once, and decided to keep an eye on the situation.
By fall, it became clear that the market situation was only getting worse, and the US Department of Commerce, in unison with the US Treasury, said the sanctions should be lifted. Thus they realized that what the owner of the sanctioned companies had been doing, corresponded to the arrangements made by Washington and the interests of America. At that time, companies restructured management as required by the White House. However, these were only attempts by the Americans to save face when the sanctions were lifted - they were removed by necessity,” said the specialist in American studies.
The general director of Rusal, Yevgeny Nikitin, said that the company had fully restored supplies of primary aluminium to the markets of the United States and Europe. "We have not yet restored (volume of shipments) for the alloys, but we are working on it," he said. And he added: Rusal continues to restore supplies to all export markets in the same volumes that were supplied before the introduction of US sanctions. In addition, the company is starting deliveries under new contracts with Japanese and American contractors.
“The decision on the final lifting of restrictions on Rusal was made by the end of 2018, and today's full-fledged return of the company to the world market is a result of the fact that the US realized its failure. The Russian company provides an acceptable competitive price level for raw material, including in the US market – something the Trump administration did not take into account when imposing sanctions. In the US, market equilibrium is ensured, in part by supplies from the Russian Federation.
And the manufacturers of the US aluminium industry were facing the prospect of bankruptcy - due to a sharp rise in prices for raw materials and a decrease in stocks. Demand for their products ceased. For the US economy, the loss of a whole manufacturing industry is a powerful blow. Also note that all of this happened in the context of accelerating inflation in the USA, which also failed to show a positive trend. The White House realized that it is impossible to take the situation to the extreme, because the sanctions backfired,” the political scientist notes.
Oleg Deripaska’s Rusal, En+ and Eurosibenergo were blacklisted by the United States in April 2018. This meant freezing of assets in the States and a ban on US citizens doing any business with the companies. At the same time, Rusal exports more than 80% of production. In January 2019, the sanctions from the companies were lifted in exchange for Deripaska’s forfeiting control over the companies, and restrictions on the businessman himself continue to apply.
Rusal is the largest aluminium producer outside of China and the only primary aluminium producer in Russia. At the end of 2018, the company produced 3.753 million tons of aluminium, which is 1.3% more than a year earlier. At the same time, the company's sales decreased by 7.2%, to 3.671 million tons. With the loss of the market, US companies alone predicted a loss of $ 1.8 billion annually, or up to $10 billion annually with a full embargo.
"The Trump administration overestimates the capabilities of the American economy - the White House seeks to grow by 3%, but it is impossible to provide such a GDP without comprehensive measures. They need to use a variety of factors, including the supply of raw materials from abroad. Russian products to a certain extent support high economic growth in the United States, and in the case of the Rusal sanctions, the US immediately saw the opposite effect of its sanctions.
Recently, we have seen that in Washington new sanctions projects have been stalled in Congress, with all bills, including the famous one announced last August calling for “restrictions from hell,” have been lying motionless in the US Congress since last summer. Everything points to the fact that since the failure of Muller’s investigation of Trump’s ties with Russia, the White House wants to rein in the sanctions race.
Probably, the Trump administration is showing Congress that he is better versed in economics and intends to initiate sanctions restrictions himself. The overall political picture shows that there is an attempt to slow down the activity of US lawmakers. And in terms of sanctions policy, Trump intends to get complete freedom from any pressure from the American elite,” concludes Vladimir Vasilyev.
Author: Maxim But
"Вся история американских санкций к "Русалу", длившаяся почти год, стала наглядным примером крайне непродуманной политики США
“The whole history of American sanctions against Rusal, which lasted for almost a year, became a vivid example of an extremely ill-conceived policy of the US branches of the US economy.
Human translator (DH):
“The whole story of the American sanctions against Rusal, which lasted almost a year, became a vivid example of an extremely ill-conceived US policy. [I don’t know what Google was “thinking.” The words “branches” and “economy” weren’t even in there. Maybe it confused Rusal with отрасль (otrasl’), meaning branch. But then why would it correctly render it as Rusal near the beginning?]