China's Metal Empire and the Fight for Industrial Power

This week on The Big 3, CPA economists Mihir Torsekar and Andrew Rechenberg sit down with Ben Carlson of SAFE’s Center for Strategic Industrial Materials to examine China’s growing dominance in steel, aluminum, and copper—and what it means for America’s industrial future.

The conversation centers on SAFE’s new report, "Strategic Surpluses: China’s Economic Warfare on Major Metals," which argues that China’s vast production capacity is not simply the result of market forces or planning mistakes. Instead, Carlson explains how Beijing has deliberately cultivated strategic surpluses across key industrial sectors, creating manufacturing capacity that can support economic objectives in peacetime and national security objectives during periods of conflict.

The discussion explores the staggering scale of China’s metal production, the role of state support and industrial subsidies, and the consequences for American manufacturers. Carlson also explains why tariffs, while important, are often insufficient on their own. Through transshipment, tariff inversion, and complex global supply chains, subsidized Chinese inputs can still find their way into the U.S. market through finished products.

Finally, the episode turns to solutions. What would a successful American industrial strategy actually look like? The answer goes beyond tariffs to include energy policy, infrastructure investment, permitting reform, recycling, and stronger rules of origin that align domestic demand with domestic production.

For anyone interested in trade, manufacturing, national security, or industrial policy, this is an essential conversation about one of the defining economic challenges of our time.

Learn more about SAFE: https://secureenergy.org/

Read the report: https://secureenergy.org/strategic-surpluses-chinas-economic-warfare-on-major-metals/


CHAPTERS: 

00:00 - 01:41 | Introduction & Opening Monologue

01:42 - 02:57 | Meet Ben Carlson of SAFE

02:58 - 08:08 | China’s Strategic Metal Surplus

08:09 - 11:19 | How China’s Industrial Policy Differs from the West

11:20 - 15:55 | China’s Anti-Overcapacity Campaign

15:56 - 18:45 | Why Tariffs Haven’t Been Enough

18:46 - 23:23 | Transshipment & Tariff Inversion

23:24 - 25:56 | The Transformer Supply Chain Case Study

25:57 - 28:01 | Beyond Tariffs: What Comes Next?

28:02 - 33:01 | Energy Policy, Aluminum & Manufacturing

33:02 - 37:02 | Can America Compete Without Copying China?

37:03 - 40:05 | Production Capacity vs. Trade Deficits

Transcript

SPEAKER_00 0:04

This is the victory from the coalition for a prosperous America, with steeler economists making a tourist car and the rest of the car.

SPEAKER_03 0:15

In steel, a single Chinese company, Bao Wu, makes more than every mill in America combined. In aluminum, China now outproduces the rest of the world put together. While the United States, once the global leader as recently as 2000, is down to just four smelters. And in copper, China has built so much refining capacity that its smelters now pay miners just to take their ore while America has almost none left. These are the metals every warship and fighter jet is built from. And we stopped making them. And this wasn't an accident. Today our guest explains how we let that happen. Welcome to the big three from the Coalition for a Prosperous America, where each week we break down the three biggest stories shaping U.S. trade, industrial policy, and the American economy. I'm here Torsicar alongside my fellow senior economist Andrew Reschenbury. So let's get to it. So today we're joined by Ben Carlson, one of the authors of a new report out from the SAFE Center for Strategic Industrial Materials called Strategic Surpluses, China's Economic Warfare on Major Metals. Ben and his co-authors did something we think is really valuable. So they argue that overcapacity in China isn't just a bug in the system. It's actually the system itself. China keeps all this loss-making capacity running on purpose because a mountain of steel, aluminum, and copper capacity churning out far more than the world can absorb is a war machine that you can keep warm in peacetime and switch on the day a fight with Taiwan begins. Ben, welcome to the big three. And so why don't you start by telling us a little bit about your background, what led you to put this report together?

SPEAKER_01 1:52

Andrew, delighted to be on. Thanks for having me. Yeah, uh so I'm from SAFE, uh, securing America's Future Energy. We are a nonprofit, nonpartisan think tank based in Washington, DC, uh, that works on uh securing America's transportation, energy, and supply chains. Um the motivation for the report is there's a lot of great insights out there talking about Chinese industrial policies, talking about sort of across the value chain of aluminum, steel, and copper. Um, you know, the great the great work that's been been done. But you know, the goal for me in this report was to try and distill a lot of that and and make it into a really approachable uh document that with the nuance kind of explains, you know, the the the Chinese story when it comes to industrial policy, how they went from, you know, uh a marginal producer of some of these metals to the by far the world's largest producer. And how the United States uh on the flip side of that went from one of the largest producers of aluminum still on the planet to, you know, now uh what we are today. You mentioned statin aluminum. We we were the world's largest producers recently in the year 2000, and now I think we're we're the 13th largest. Um, you know, so just to tell that story in a nuanced way, um, you know, how we got here and you know, what's what's what's the path back?

SPEAKER_03 3:08

Great. Yeah, so I'll I'll start right there. You know, the the title says it all of the report. Um, and so that that word strategic is is really something that that sticks out. So, you know, most of the the coverage about Chinese steel and aluminum, they call it overcapacity, and it it seems to imply that this was kind of like a planning mistake or they built too much, and they keep promising to fix it. They talk about these involution campaigns and things like that. But your your report talks about it being something different. So um I'll ask you like what what convinced you and your uh you know, the folks you worked with on this report, like that this was a surplus that this surplus was a strategy and and not just some mix-up or some you know mistake that they made.

SPEAKER_01 3:45

Yeah, I mean, I I think I think two things can be true at once, right? It can be both a mistake and a strategy. Um I'm I'm not sure there's uh you know, it's the out the outcome that matters, right? I'm not sure the motivations are are are what's important here. Um, you know, when it comes to steel and producing more steel, I mean China's been at this for you know, going back to the hour, right? You know, we we had Miles Adolf the man itself talk about wanting to the you know overtake the UK uh and steel production way back in the days of you know the Great Wear. That's that's what the campaign was about. Um and so we just we've seen China just just do it, right? Like they're they're now the largest producer. Um and so I think yeah, we we wanted to sort of ground, okay, what's going on here, right? It's it's uh it's these these are the metals that underpin most of modern life, whether that be infrastructure, uh the defense industrial base. Um, you know, they're they're too important for us to just completely let uh be offshore or or manipulated by frankly Chinese industrial policies. Um and so, you know, to understand how are we going to address um some of these issues to make our own industrial base or defense industrial base more resilient, you know, we we need to kind of go and understand what are the causes of that, what are the Chinese policy makers doing, how do they achieve that? And so, you know, by and large, um, yeah, it's state planning, right? This is uh this is a non-market economy. Um, they've been doing this, you know, directly back, you know, when it was a command economy. Now we've got a socialist market economy. So there's elements of a of a market economy kind of mixed with state state planning. Um, and so yeah, uh steel overcapacity is something we've been talked about a lot. You've got, you know, you you mentioned the top, like Bawo Steel. Bawo steel doesn't make more steel than just all of the United States. Bawo steel makes more steel than any other country except India, right? So you know, it's it's a single state-owned berm that is just you know remarkable market share. Um, you know, we and we see similar challenges when it comes to aluminum, uh we see similar challenges when it comes to copper. Um, you know, copper, the the the margins on smelting or frying are negative. Um so that's that's like you going into McDonald's and them paying duty the burger. Exactly. On aluminum, right, you know, we we've got a similar sort of issue when it comes to to power. Like China invested in all this coal. And, you know, just the nature of the grid is you got to figure out something to do with all that all that excess electricity capacity. And aluminum came along as a very, you know, a positive uh, you know, sort of demand pull for that electricity, right? It's a very attractive thing. So, you know, is it intentional? Sure, right? Like China was industrializing, they needed the metals, they wanted to grow into the world's factory, um, you know, and it and it has paid off for them, right? Like they they control how much of global trade. You guys probably have to figure off your job overhead. Um, you know, they're one of the largest manufacturing countries, if not the largest. Um, and that just requires uh a remarkable amount of meta. But you know, the story of the United States so far has been a steel and copper, foundational and national security, you lose these industries, you um, you know, you you lose in a key element of the defense industrial base, which, you know, safe, we agree with. But the flip side is true, right? When all those metals are concentrated in in China um and they have all that production that could be retooled for other things, um, you know, it it it does provide them with a degree of industrial preparedness when if you would need to retool or prepare for you know potential military conflict. Um, and so you know that that that's something that I think US policymakers should be uh should be aware of, be concerned of, be tracking. And then we, you know, also wanted to tell the nuance story that, you know, uh, do I think that the Chinese wake up every day and you know think about, hey, we want to screw over US domestic metals product? Probably not. They're trying to think about how do I manage youth unemployment, how do I keep my steelworkers employed. Um but, you know, in their response to uh prioritizing those domestic interests, right? Employment, yeah, which any government would, right? You're you're creating and frankly exporting a problem that the whole rest of the world needs to deal with. And so I think, you know, from from our perspective, is if we want to deal with that problem effectively, we really need to understand the root cause of what's going on and what the consequences of that are, both on the United States but also on China itself.

SPEAKER_02 8:19

Yeah, just to highlight the difference of what China's doing as opposed to everyone else, I wanted to play devil's advocate here for a moment because here in the US, we have our certain industrial policy matters, whether it's the ChipAcks or the IRA, Canada has power deals for aluminum smelters, the European Union has had policies to support Airbus. So I really wanted to focus on what is China doing, especially in regards to with what you're saying in your report with steel, aluminum, and copper, what are they doing that's so different that compared to every other country, what is uniquely their policies that are so damaging to this market and so different from what everyone else is engaging in?

SPEAKER_01 8:53

Yeah, it's a good question. Um I I would say just the top, it's the degree in the steel, right? When you've got one company that makes more steel than anyone else's uh output. Uh it it it's remarkable, right? You know, we're we're we're talking about you know a company that has more production capacity than Germany. Germany that's owned by Chinese government. One of many companies owned by the Chinese government. And so, you know, I I think you're you're you're you're comparing apples to oranges when you compare a market economy to a non-market economy like China, right? You have a whole host of industrial subsidies, which yes in circumstances occur in market economies. And a baby listener, right? Like we we've got you know sweetheart deals and and uh uh for power for certain producers, we've got uh, you know, every every every country on the planet has some type of manufacturing strategy. Um and so what I think uh change you know where where China is different is just the degree to which they subsidize. Um we've got charts, uh you know, you the OECD tracks this pretty closely, and you can just see the the the level of subsidy um by far exceeds any other country that the OECD takes a look at when it comes to aluminum uh subsidies. And you know, you you you see the effects of that excess capacity, like in copper copper snoting, right? To be clear, we absolutely need more aluminum copper, right? We are we're not we are short supply in those markets, but the areas where you know you see the excess capacity show up, for example, copper smelting and copper refining, uh it's it's hard to believe that a market economy, a company operating in a market economy without some type of industrial policy support, would just be able to sustain negative margins year over year over year. And it being, you know, and the reason that's happening is because you know the Chinese government is looking at it in a broader strategic, you know, capacity. They want to dominate critical minerals, right? That is that is something that gives them a lot of leverage, it gives them a lot of manufacturing opportunities, right? When you're able to kind of concentrate that supply chain, you know, the downstream products, those will concentrate in your country as well, batteries, some of these next era, you know, energy generation technologies. And so, you know, it's a strategic advantage for them for to have these industries uh in in their country. I think they have acknowledged that and they've acknowledged that for a while. And, you know, they have the the capabilities and the means, you know, because they're not a market economy to just sustain uh policies that would not not be viable, um, say in the West.

SPEAKER_03 11:30

Yeah, and so I I guess I want to get ahead of something, you know, we're gonna hear a lot about this year. You know, Beijing, they've talked about overcapacities, you know, for a while now. Um, and it seems like there's this whole anti-involution they call uh campaign that they're talking about because it's the price compressions that are happening all across their industries. Um and I guess, you know, I I guess I'm a little skeptical about the effectiveness of that overall because the decision I think that that keeps these plants running, I think it it seems to happen a lot at the provincial level. The incentives seem to be, I mean, just even the way the tax system is is designed and and the the the governor, the local governor needs to, you know, keep the plants running for jobs and tax revenue. And I think you even have a report in a quote from your report that um in 2015 the Steel Association chief admitted that local governments were they kept urging uh firms to produce even when the center wanted them to stop. So so I guess my question is, you know, why hasn't a decade of supply-side reform rhetoric actually cut production? And you know, is this anti-involution campaign push uh that we're hearing about um is that gonna be any different or is the surplus just too wired, you know, too deep in it's just too entrenched um, you know, into the country itself?

SPEAKER_01 12:40

Yeah, it's a good question. Uh I I think steel in the metal sector and what we're seeing today with the anti-involution campaign is a little different, right? Because back back then we were literally looking at state-owned companies. Um, and now you have say excess production of you know electric vehicles, right? That's that's inherently sort of a private sector, you know. That that's something the private sector. But yeah, I uh you know it it's interesting, like China's a billion people, they have their own politics, right? And so there's there's a difference between you know what the central government is looking at versus say provincial government, right? And and and that quote I think is is is pretty remarkable because it's it's Chinese policymakers. Um, you know, the head of the iron and steel industry association went on to be the mayor of Guangzhou. Uh so you know, there's this kind of fat industry uh political tie there. But you know, that it it's it's politicians in China, it's the industry in China opening the knowledge and like, hey, this is a political process, right? You know, what what's good for the local government is making sure that people uh stay on the job, making sure that there's social stability. But the central government is not, you know, I think immune from looking at all of these uh policies, and you know, the the results are probably pretty inefficient allocation of capital, right? Like it's a it's expensive to have all of this capacity uh when you don't have a real a real buyer for it, right? Like there are strategic advantages too, but there are actual costs to it, costs borne by you know Chinese depositors, Chinese uh taxpayers ultimately. And so the central balance the central government's got to balance that. And so yeah, you're able to see live you know the provinces are competing with each other. You've got the central government trying to steer the ship. Um and so you know, I think for Americans, they they're gonna want to do something, they're gonna want to reduce capacity, but it's to what end, right? We've had about a decade of them talking openly about steel excess capacity. We've had, you know, uh uh similar conversations in the copper world about excess refining. Um even if they reduce the capacity, when you have a single firm that makes more steel uh than anybody else on the planet, and you lose that firm, that's a lot of capacity that goes off the world. But still, China's still the largest uh producer in that market. And so I think there needs to be sort of a nuance of like, okay, you know, there there are certainly measures that they could take to reduce excess capacity, but does that leave China in a position where they're not the dominant force in any of those markets? And I think that's really the question we should ask, right? Um as for what's kind of going on and you know the ED space, time will tell. Maybe it's different with the with the with the private sector being more in the driver's seat. But when you've got these state-owned firms uh and it in China is seemingly you know enjoying an adjaceous position and its dominant role in critical minerals, metals, uh, I don't see that changing anytime soon, even if there are genuine measures that uh reduce some of the excess within the country.

SPEAKER_03 15:41

Yeah, it's good. They've they've built all these industries, and I think that they're very keen on, you know, kind of jealously guarding their market share at all turns, even with this sizable advantage. So uh yeah, it's definitely something that I'm certainly following and very concerned about. Andrew, I'm gonna have you turn it uh turn it to you to transition us to the second uh topic about the tariffs and and and the policy measures that have been applied so far.

SPEAKER_02 16:05

Yeah, so I wanted to talk about for segment two why the tariffs that we've had with China haven't been fully effective. We've on the show we've talked a lot about different measures, whether it's transshipment or just different supply measures that it can get in, or just how a lot of the traditional trade measures aren't enough to stop the full tide. And so I wanted to see and get your take on why the Section 301 tariffs haven't been enough to stem this overcapacity from China and what are some of the holes in this system that you've seen?

SPEAKER_01 16:35

Yeah, so trade policy is I I think fundamental to addressing this, you know, non-market uh actions and the harms that they've caused out to US US US uh US businesses. So let me just start by saying that, right? That the the conversation needs to start with trade policy holistically. Um but it it's it's not enough just to look at trade policy. You you need to look at it sort of holistically. Um I think if you look in aluminum, um that's an interesting sector because China has, you know, a cat of 45 million metric tons to address this excess capacity. But you know, the damage is kind of already done, right? We we went from the world's largest producer to the world's 13th largest producer of primary aluminum, and we we import 85% of the primary aluminum we need in the United States. And so uh a trade policy solution is is part of the holistic industrial strategy that we should we should take to say, hey, we we need this stuff, we need this stuff here, this is important for the economy, for the fence industrial waste, et cetera. But you know, 40% of the cost of production of aluminum is energy. Um, and if you don't have an energy policy conversation and you just have a tariff conversation, uh, you're not necessarily going to get to fill in that 85% gap. You know, we have uh, I believe in the aluminum industry, the capacity utilization isn't great, but it's getting better. One of the reasons it got better is because we had a smelter shut down in Hosville, right? So the capacity utilization went up, but just not in the way we want it to. And that, you know, smelter closed and became a data center. And so I think the the holistic view that China has taken towards this metals, it's not just, you know, tariffs, it's not just their trade policy, it's uh oil market borrowing, it's energy policy changes, right? There's a whole host of things that lifted the Chinese economy and the Chinese metal sector into what it is today. I think if the United States wants to sort of undo some of the harms and fill the gaps that uh remain that maybe domestic production capacity can't fill, especially on the copper side. We have two smelters uh in copper, you know, it's gonna probably take a very nuanced whole of government industrial strategy rather than just a trade policy conversation or specifically just a tariff policy conversation.

SPEAKER_03 18:56

Yeah, I think that to address the devastation that has occurred in these industries is you're right. I mean, it's not just gonna be like a one-trick pony of tariffs and that's just set it and walk away. We're talking about because again, when you close, when you when you close a smelter, for example, it's not like you can just turn it back on when market conditions are more favorable. You know, these are you know how many billions of dollars of capital investments just to like erect a smelter in the first place. And so generally speaking, you want to keep these things, these uh, you know, these uh facilities operating, and when they shut down, it's that's basically the death knell. It's it's not gonna come back. Um so yeah, to try to address that is gonna take so much. And you know, I guess, you know, since we're talking about trade policy and and what has is kind of um maybe limited at in some instances the effectiveness of the of the tariffs, let's talk a little bit maybe about transshipment, you know, because we hear a lot about uh about that word, and maybe Ben, if you can give us some of the folks who are listening, and and you know, again, some of our our our members are well versed in this, but you know, for some of the other listeners who maybe aren't as familiar, uh, you know, is it is it ever the case that we're seeing Chinese metal that ends up reaching the US steel like through transshipment, even when the tariffs are in place? Is that is that a route you you kind of see happening? Is that you know trade diversion story something you're seeing in this industry?

SPEAKER_01 20:11

Yeah, I think undoubtedly that goes on, right? You know, and I think I think that's probably one of the hardest challenges in trade policy that you know both the government and governments around the world who are concerned about this, you know, pretty serious below market metal production coming out of China, how do you solve that? Um, because at a certain point it does matter, right? If if your overall demand, not just the demand you and your manufacturing industry today need and where you get that metal from, you know, but if your overall demand, the stuff that's coming in embodied in a product, uh still if that supply chain still runs through China, even though it's indirect, maybe that metal gets shut down to Vietnam, processed into a, you know, and into a product or Mexico or Canada. You know, that's it, it's still a challenging uh, you know, environment because that means that the metal produced in the United States isn't going to a manufacturer um to be transformed into something here in the United States. And so um I I think it's a real challenge. I think it's challenging to figure out how big the problem is because you really do need to go into like Mexican imports of transformers and where do they get their grain orange and electrical steel for? And you know, what's the weight of a transformer and what's the approximate percentage of the grain oriented electrical steel? Like that is a really challenging thing to do. Um but wait, you can't you can't just put the competition, right?

SPEAKER_03 21:32

You can't put that in the chat GPT and just get get an answer. I mean, come on. I thought that was it was something simple. No? You're telling me it's complicated?

SPEAKER_01 21:39

And and and so, you know, that's that's why I try and say trade policy instead of tariffs, right? Because I think trade policy encompasses things like rule of origin, right? Because at the end of the day, what you want is your your your metals demand met by US and Allied supply, right? Um, we've got the state intervention, and you know, nobody Is really winning if you've got a uh supplier, you know, getting in cheap Chinese metals and then bringing that in the United States as a finish gun, right? All you're doing is incentivizing kind of that mid-level production and manufacturing stream to leave the United States. And so a holistic policy, a holistic industrial policy, trade policy and industrial policy, right, really looks at that, looks at the competitiveness of the of the metals themselves, looks at what the metal producers need to be sustainable and robust in the long term, but also looks at what are the customers, right? Because if you just tariff the metal, but you let the finished product come in, uh, you know, that's that's tariff inversion. And ultimately that's that's a really challenging situation. And how do you solve that and how do you address that? And so I think uh a holistic trade policy would would really take a look at that in a way that I think addresses some of those diversion concerns, whether that's through rules of origin or through some other novel trade policy approach.

SPEAKER_02 22:56

And I don't have all the answers here, but it's a real problem that it needs to be addressed. Yeah, and expanding on this, uh, the tariff inversion problem that you were just saying, I wanted to kind of talk about this a bit more because in my own research, we've seen this with aluminum as well, where you might have some tariffs on the primary aluminum that's coming in, but if you don't have that same production for all the downstream products, then you could lose the whole sector. You don't even need the primary aluminum if you're just importing all the finished products as well. And I think one of the great examples from your report is the uh transformer issue and exactly what happened there. You touched on it a little bit, but can you expand on exactly what happened with this transformer issue and how that impacted the sector?

SPEAKER_01 23:34

Yeah, so there's not there's nothing new here. There's nothing new in novel. If you've read the Section 232 and the Transformer Core report that the Bureau of Ministry of the Security of the Commerce Department put out, you'll know all the answers. But you know, essentially what they found in the report is that you had had this challenge of, you know, green orange electric steel for your audience is incredibly important for the production of transformers. Transformers are the you know foundation of our grid, right? They all 90% of electricity passes through a transformer on its journey from generation to end consumption. So the transformer is literally the heart of the grid, and the grain orange electrical steel in the core of the transformer is literally the heart of the transformer. So we're talking about a steel that essentially powers modern modern modern life. The challenge is, you know, we've got a globally competitive transformer, you know, market. We've got grain orange electrical steel, which is sort of the base metal. Um, you know, tariffs went up on that. We had cores and laminations, which are sort of the mid-product. And, you know, you what you saw uh under the report, which the commerce department investigated, is that you know, you had you had some manufacturers basically instead of opting to buy US metal, they would buy metal from overseas, process it into a third a third country, and then put it in the transforming that country and then bring it in. And so that's just a it's just a classic example of tariff inversion where you know the signals that you're sending to the manufacturers are to play these games, not necessarily on US metals. And so the the trade policy solution there is probably a really strong rule of words, you know, where you just look at the whole host of the value chain and you say, let's make sure we align the incentives for domestic manufacturing, not just at the metals production stage, but across the value chain. But it's also really complicated because then you get things like, okay, aluminum cans, right? Like if you're breaking up an aluminum can, are you gonna, you know, tack ta tax the metal in a coke can? So it's it's it's very challenging. And I think it gets back to some of the, you know, it it is just at the end of the day, really, really challenging to address and mitigate the harms of subsidized base material production, right? Whether that be critical minerals or whether that be metals, because essentially it reroutes those supply chains to be dependent on, in this case, China. You know, the market moves to who gives the most subsidy. Um, and you know, that's that's the real challenge with trying to trade with a with a non-market economy, um, is that some of those gains from trade uh look very attractive, uh, but you know, the the comparative advantage is artificial and it's it's it's based on subsidized production.

SPEAKER_03 26:07

So it you know, so here before we transition to the the final segment, it's like we've we've kind of taken inventory of what we've covered so far. So we've got this strategic surplus that's being built on purpose. Um, we've identified the problem, and we've got you know policies like tariffs that are erected in place to try to you know present prevent some of these challenges from happening, but that metal is simply just rerouting around those channels. Um and at the same time, our industry keeps uh you know eroding. Uh and so the fix obviously has to be bigger than just addressing it at the border. So, Ben, let's let's spend our last act um there. If you know if trade enforcement alone isn't going to solve the problem, I guess, you know, what do you think will? Um so you know, your report lays out a pretty comprehensive roadmap. Um, and I I don't want to just like run down the list. So maybe if you can can talk about like uh you know some of the the big things that you would like to see Washington prioritize, you know, what's the biggest move you think that could move the needle forward on this?

SPEAKER_01 27:08

Yeah, I you know, continuing the conversation on trade policy, it's an important part of the solution. Right. You know, these these harms are heading in the United States through trade. Trade policy is in part of that. Um, you know, rules of origin that are strong that incentivize, you know, US producers and the partners we trade with to use metals from their country, from allied Western countries, market economies, process those goods into products in allied Western market economies, I think would do a long uh a lot to help us address some of the challenges because that that sort of aligns the demand with our supply, right? You're you're wanting to align kind of Western market-based demand with Western market-based supply. So trade policy is an important part of the solution. Um, you know, we mentioned energy, right? We are uh in an era where uh electricity uh there's more demand for it than ever. Eventually that's gonna translate to price. And so I think you know, China has been very successful on the energy front, uh, shows in primary aluminum. Um, and I think the United States needs more leadership when it comes to energy, right? Permitting reform, we should get it done. We should build some of those great transmission lines like they build in China, the high voltage stuff. Um, you know, we we but just generally we need to make it easier for people to build in this country or uh across the board. Um I would also say that one of the uh just just holistically understanding uh the incentive structure across the value chain and where in that value chain the intervention uh is needed, I think is also helpful, right? Just gets back to state capacity. Um, you know, more nuanced policy, you know, you can get away with smaller targeted fix fixes rather than you know a grand bill coming out of Congress. And so, you know, energy policy is an important part of it. Uh we also, when it comes to metals, like recycling is a great way to secure supply chains, right? We have the scrap at home. Uh we can recycle it at home. It typically uses a fraction of the energy. You've got a shorter supply chain, you've got a win-win on uh from an environmental and an energy perspective. Um, and you know, we have the benefit of not having to uh you reliant on some of these markets that are influenced by the Chinese and compete in the metal sector in a way that's more competitive. So when it comes to metals, I'd also say taking a really hard look at secondary production, which is where we get most of our copper, steel, and aluminum.

SPEAKER_03 29:35

Um yeah. Andrew, I'll turn to you in a second, but real quick, yeah, on that copper point is yeah, the secondary uh side of the argument is essentially the critical feedstock for our copper mills. And they themselves are competing with the Chinese market on that front because China is, you know, they're they're able to just you know pay whatever for our uh harvest of copper scrap here. And so our mills are are competing against the copper side of folks. So yeah, I mean it tariffs alone uh just gives you an example. It's it's that's not sufficient. At least, you know, that's just a concrete example. But Andrew, go ahead with your question.

SPEAKER_02 30:09

Yeah, I just wanted to expand on the the power angle a little bit more because in our own aluminum research, we've been looking at this quite a lot and just showing how for primary aluminum, electricity is about 40% of total smelting costs and it's really holding back even our current production with aluminum uh capacity utilization really only at about 53% right now. And so I wanted to ask, is do are you seeing this with a lot of other sectors like steel and copper as well? And not only to get our capacity utilization up, but do you think sort of a power deal is needed for these sectors, especially to open new production? Or do you think that a lot of the other measures that you've talked about, such as just making it easier to build, might be sufficient along with tariff protection?

SPEAKER_01 30:52

Aluminum, specifically primary aluminum, when it comes to power, is relatively unique, right? The requirements in the primary aluminum smelter are electricity and it's specifically 24-7 electricity. You can close a primary aluminum smelter down for about four hours a year. Um so it needs a significant amount of steady, cheap power. And to be honest with you, that's a very similar profile to what a data center needs right now. Um we've got a boo in data centers uh uh across the country. The risk there is that unless we have some type of a durable energy policy that sort of acknowledges, like, hey, you know, yes, the data centers um, you know, are unique category, but we also have other large loads that need, frankly, power at you know, a relatively affordable price because they're competing in a market that is subject to a lot of industrial policy from China. Um, if you don't solve that power problem, you're not really solving primary aluminum's fundamental competitiveness nature. Yes, tariffs you know are part of that solution to just directly, you know, uh uh address some of that unfair competition. But when it comes to the competitiveness of the sector, it's really all about the power. Within the rest of the metal sector, I think they're a little bit unique. There's a different profile. They can turn off the machines, turn off the machines like an electric arc furnace. There's there's sort of more alignment with you know uh variable power sources. And so you can kind of capture, say, cheaper sources from renewables in a way that makes a little bit more sense. But primary aluminum, um, you know, that's a challenging one. And I think it just gets back to transmission, right? We we have a grid, we have a lot of generation across the country, both uh, you know, renewable and traditional. We just need to get that power onto the grid, and the constraint there is interconnection, and that's that's largely just driven by the fact that building new wires, new transmission in this in this country is just very challenging. And it's a long process due to permitting, planning, cost allocation, supply chain, you list it. Um addressing those issues on the power side helps address those issues on the manufacturing side, which helps not just primary alumina, but the entire manufacturing sector become more competitive competitive. So I I think that is something that we really need to take a look, a really hard look at.

SPEAKER_03 33:12

So here's a question again on the policy front, because when we think about what it's gonna take to try to compete against these state-owned enterprises and the backing of the CCP that is just funneling resources and just granting low-cost loans and just doing all of these things, pulling every lever. Um, and you know, you think about how much waste is also associated with this model, because sure, for all of the success, if you will, in terms of just prolific production that's being brought online in so many different sectors beyond just the report sectors covered in your report, there there comes with it the cost of how much you're losing on a lot of these industries. I mean, I've I've I've run this joke before, Andrew's heard me say it, like the the the CCP tolerates losses more than the Cleveland Browns fan base, right? I'm a football fan from Cleveland. So I I'm familiar with what that looks like, but the US government is a different story, and you've got fiscal hawks who look at say that that you know, there's no way that we can tolerate that kind of thing. I mean, it's it's just too much public money for some of these solutions, too much intervention. And um, you know, what do you what do you say to the argument maybe that some people would say, well, in order to fight China's model, you have to, you know, build China's model or mimic China's model to fight China's model, I guess.

SPEAKER_01 34:24

I think when it comes to what do we do, right? Trade policy and industrial policy in the United States. I think what they're really about is creating space for market competition, right? We probably can't out-subsidize China, nor should we try. Where I think we what we need to do is we need to align the incentives across value chains um and across the manufacturing economy, but also where the demand comes, you know, aligning demand with supply, so that there's space on the supply side for genuine market competition. But some of that unfair market competition that comes from from overseas is is is is addressed in a way that holistically makes sense. You don't have these transshipment issues. You you you you you address some of the fundamentally uh issues with the energy system of the United States that are sort of dragging down competitiveness. I think if you do that, you can create an ecosystem where you know you you don't necessarily need to endlessly subsidize producers, nor do I think that that that is that is a a long-term sustainable roadmap for either the United States or China, right? Fiscally, you know, the the the money ends at some point. But there are certain strategic sectors when you're at the start of this endeavor, which I think will be a multi-decade hole of government if we're gonna be successful uh strategy to have an industrial policy that works for American manufacturing. Um, and there's probably an argument at the start when you're when you're kickstarting that process that, yeah, there's gonna need to be some some level of you know state support, you know, 70 support, just because you know we we have let certain aspects of our production capacity be offshore into China in a way that is is just not helpful. You know, we saw in the COVID-19 pandemic, you know, that we we we did not have a great domestic capacity to make gloves or masts or respirators in this country. And you know, in and in that environment, when you really need the stuff, you know, there's only one tool. You you've subsidized it and you build the factory and you make sure it gets built. But should that be the long-term uh solution? No, probably not. We should have some way of aligning demand with some of these strategic materials, whether they be steel or whether they be domestic PPE, so that when the next pandemic or when the next crisis hits, we can rely on that manufacturing supply. Um And so I think that's that's what gets stuck to it. Tariffs are a part of that solution, trade policy is absolutely a part of that solution, but it requires a holistic industrial policy looking at the health of the manufacturing sector at large.

SPEAKER_03 36:54

Aaron Powell Yeah, it's funny that you mentioned, I'll turn it to Andrew in a second, but it's funny that you mentioned the COVID pandemic, because that actually happened to be when we first uh actually engaged uh like six years ago. Seems like we just these crises just keep bringing us together. Um So, Andrew, Andrew, I'll let you uh I'll let you ask a question if you if you had any thoughts before we wrap up here.

SPEAKER_02 37:12

Aaron Powell Yeah, just as we're getting towards the end, and I think that you're just touching on this a little bit at the end, but one of the things I thought the report did really well is basically uh restate the framing of the trade policy issue because I think a lot of over the past year, especially with the Liberation Day tariffs, that a lot of this trade policy seemed to be based on what's our trade deficit with all these different countries. It's very demand-focused, it's very much on the consumer side. But one thing I thought this report did really well is reframe things and into terms of how much can we produce in a crisis? How much could we produce if a COVID-like event happened, or if we needed it for a defense industrial base. So I just wanted to see if you could explain a little bit more of why you think this sort of framing is especially useful in putting it in terms of what we can produce here rather in terms of what we're currently buying on a day-to-day basis.

SPEAKER_01 37:57

Yeah, I mean the the the challenge with tariffs is that they're just very polarizing, right? Someone is benefiting from it and they really like it. And then someone is is paying it and they really don't like it. And, you know, I I don't think that there's a realistic scenario of a holistic industrial policy, which includes street policy, which includes tariff policy. When you don't have some level of tariff, especially on non-market competition and and artificially induced supply, like you know, the metal sectors down in China. You know, a tariff is absolutely going to be some level is going to be part of the solution. However, you know, what I wanted to do with this report is, and I think we in the United States, when we talk about tariffs, it's it's it's an us versus them, it's a downstream versus supplier. You know, really what's let's refocus this. This is the effects and consequences of non-market activity and in in in China, right? And it's it's pitting Americans and American producers and manufacturers again against each other in a way where we should, you know, and I argue, and we tried to do this in our report, step back and say, hey, let's look at the bigger picture. This isn't about who pays the tariff and at what rate. And this is a this is a tool in one of it one of the tools in the toolkit and a holistic strategy to address what I think we we should address, which is non-market industrial policies coming out of China that you know are good for them, but uh are having some some some pretty direct harms on some pretty important sectors in the United States. And uh, you know, what what do we do about it? And so I think when you when you take a step back, uh it's a little bit easier to have the conversation about you know what tools, where to what degree, and you know, how do we address this? Um because you know, I think what we would argue is that the status quo is just gonna lead to a lot of concentration of a lot of very critical supply chains uh to China. And uh I'm not sure we would link that that version of the world as an as Americans.

SPEAKER_03 39:54

Yeah, what could go wrong with that? Um so Ben, this is this has been exactly the the conversation we hope for. Uh really enjoyed uh talking with you, really appreciate your time. Before we let you go, the question we ask every guest. Um, you know, if the listener were, if you were to have the listener take one thing out of this report or our conversation, what do you think it would be?

SPEAKER_01 40:16

It's a good question. Um, we we really need to start looking at industrial competitiveness and domestic production of critical strategic industrial materials like metals in a way that I think tries to match what we can produce with with our own demand, right? And and and looks at it from a holistic perspective. You know, I think what I was trying to do with this report is is is really you know provide nuance, right? It's it's not just a tariff story, it's not just a China story, right? This is a sector, this is a problem that even China itself grapples with. What do we produce and how much? Um, and so you know what I'm hoping the readers can take away with is a lot of nuance in here. Um, and to really understand what the United States should be doing when it comes to industrial competitiveness, we we absolutely need to be understanding what China is doing because there's just a relationship there where, you know, if you don't fully understand all of the policies and tools and the way to deploy them, uh, I'm not sure we're gonna be able to effectively mitigate or protect ourselves from some of the some of the harmful uh effects of that. And so, you know, getting that nuance into what they're doing, I think can help us get a more nuanced and effective and targeted and cost-efficient policy response to you know how we should be thinking about it in exchange.

SPEAKER_03 41:42

Yeah, and and and one thing I'll say about the report, um, so there's there's and we talked about this, you and me did, Ben, um a couple months ago, where we were talking about copper and and what what's been put out there. And one of the things that's great about your report, and I think I encourage readers to look at it, is whereas like you know, steel and aluminum, they have a lot of you know articles written or reports written about them by the OECD and really thorough and kind of robust analysis, copper is one of those industries where it it's just the the data, the information, it's just kind of hard to come by. And so I think this is one of the real sources that that for folks who are really interested in that sector in particular can come and find a rich uh vein of information. Um so that's the plug I'll put in for that. But Ben, you're you're you're an author of The Strategic Surpluses, China's Economic Warfare on Major Metals, uh, from the Safe Center for Strategic Industrial Materials. Thank you for your time and for the work. Um learn more about our work at prosperousamerica.org and be sure to find us on YouTube. And you can check us out, uh the big three on Apple, Spotify, Google, and whatever you get your podcast.