Tariffs and sanctions do not work. Sometimes they backfire spectacularly. Eurointelligence provides an interesting example.
- The EU is in a state of desperation over the fast arriving prospect of acute aluminium shortages as US sanctions against Russian companies and their EU dependencies, are beginning to bite.
- Prices of raw aluminium and aluminium oxide have skyrocketed, as we are now only days away from the shut-down of Rusal’s aluminium plant in Ireland.
- The EU might also get caught in the cross fires of a US/China trade war.
The big story over the weekend is the clear and present danger that US sanctions against Russia pose for Europe’s manufacturing industry. The FT has the story that the EU faces imminent supply shortages of raw aluminium and aluminium oxide. One of the companies targeted by the sanctions is the Russian aluminium supplier Rusal, on which the EU depends for its aluminium supplies. The price for aluminium has skyrocketed in the last few days as shortages are becoming acute.
Such bottlenecks are evidence of the EU’s acute dependence on both on Russia and the US. EU diplomats are now begging the Trump administration to exempt aluminium from the sanctions. France is leading an effort by EU countries to get the US to ease its sanctions against Moscow.
As the supply lines of alumina are running thin, the EU’s metal industry is warning that it may need to curtail production, and this will have knock-on effects on the whole of the European manufacturing industries, including car companies.
Collateral Damage
MacroPolis writer Jens Bastian notes Collateral Damage in Europe.
Negative spillover effects can materialise in certain product categories and services through Sino-European supply chain networks and financial interdependency. But the possible damage extends beyond the material consequences and risks. They translate into a more comprehensive re-think about the nature of trade relations between European countries with the US and China. One way or the other, EU members states and candidate countries are caught in the trade war crossfire.
China is in play and won’t go away in Europe. For policymakers in Brussels, Berlin, Athens and Budapest the escalating trade confrontation between the US and China will challenge the prospects for a sustainable economic recovery in 2018. But the collateral damage of this ongoing dispute could hurt German car manufacturers exporting to China, delay lending by Chinese banks for infrastructure projects in Southeast Europe, and ultimately broaden the fault lines emerging within Europe and vis-à-vis Washington DC and Beijing.*
Shortages Force Trump’s Hand
Global shortages and skyrocketing prices likely forced Trump’s hand. Today we learn Aluminum stocks fall as US considers easing sanctions on Russian company.
The Treasury Department imposed sanctions earlier this month on Rusal, the second-largest aluminum producer in the world, as part of a crackdown on Russian oligarchs. Rusal is controlled by Oleg Deripaska, who has ties to Russian President Vladimir Putin.
The sanctions barred Americans from doing business with Rusal and put pressure on world aluminum supply.
On Monday, the Treasury Department said it will consider easing the sanctions on Rusal if Deripaska divests. Alcoa (AA) stock lost 13.5%, Century Aluminum (CENX) 5.3% and Aluminum Corp. of China (ACH) 9.6%. The price of aluminum itself fell more than 5%.
Rusal produces 7% of the world’s aluminum, and the United States is its second-biggest market after Russia.
“Rusal has felt the impact of US sanctions because of its entanglement with Oleg Deripaska, but the US government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” Mnuchin said in a statement.
Mnuchin Translation
We messed up big time.
Weekly Aluminum Chart
Lose-Lose Policy
Why the EU foolishly follows Trump sanctions on Russia is a mystery.
Regardless, and as I and others have stated repeatedly, no one wins trade wars and no one benefits from sanctions.
Both operations are lose-lose policies.
Mike “Mish” Shedlock
Or, maybe it’s a loss for both. Contemplate that prior to the end of the Roman Empire, you had a Senate that stayed in power by voting to give things to people. You had all the work being done by slaves, and the Roman Citizens had a great lifestyle, but no jobs, while the slaves had a job, but a horrible lifestyle. But, eventually the empire ran out of gold, and the whole thing collapsed.
Trump is going to micromanage his way into the footnotes of history
@whirlaway
“regular American citizens have become debt slaves” for the exact same reason everyone else in America, from corporations to cities and counties to the Federal Government have become so: Because debt has grown. Due to actions by The Fed. And to a lesser extent regulations.
The possible fact that at some point during the same period; some mosquito flapped his wings outside Tokyo, and some Chinese farmer started building computers, has exactly nothing whatsoever to do with it.
So, just End The Fed, dump most/all regulations, rules and laws, and regular people will no longer be debt slaves. Simple as that. No matter what some random dude halfway across the world happen to be doing for a living.
The Rsal line was an effort to persuade the Russian government to correct its behavior. What is happening in Russia as a result of this situation?
It is a win for US corporations and its executives. And regular American citizens have become debt slaves in the process. That can’t possibly be a win for them by any stretch.
Bingo. Fools in the USA lament the loss of slave jobs and then forget that China is sending us the productive output of their massive labor force and in exchange we are giving them IOU notes that we willl never pay off. So the Chinese government has slaved out an entire generation of its people to us. Does that sound like a win for them or for us?
And yet, have the chinese citizens benefited from their big “win”? How is their pollution? How is their ability to buy homes and consumer goods?
No one wins trade wars? Looks like China has done very nicely, thank you, over the last two decades of the trade war they have been running versus the rest of the world.
China has had a largely mercantilist policy — high tariffs against imports, even higher non-tariff barriers; the US has had a largely free trade policy of low tariffs & low or non-existent non-tariff barriers. Looking at the booming Chinese economy versus the sluggish US economy over the Bush/Soetero years, it seems that trade wars can be won — provided your dumb opponent unilaterally disarms.
“Why the EU foolishly follows Trump sanctions on Russia is a mystery.” Its as if they have the same banking overlord!