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Eric Schuck: Costs of reopening a plant

Malaga isn’t exactly the center of the universe, although it is pretty close to the center of Washington. A half-dozen or so miles outside Wenatchee, its central feature is an aluminum mill — one of eight in the United States. Now idle, but once home to nearly 400 workers, the mill smelted its last ingot in 2016 and now lies quietly mothballed, tended to by only a handful of caretakers.

Like numerous aluminum plants, the Malaga mill fell victim to flat global prices: aluminum selling for about $1900/ton in 1980 brought in only $1800/ton in 2017. Toss in the effects of inflation, and the industry simply doesn’t earn as much today as it did 30 years ago. It doesn’t take a Ph. D. in economics to understand why the factory closed.

Yet there’s talk now of reopening the mill. Global prices haven’t changed a whole lot — they’re actually trending down right now — but that fact may not matter. Rather, 10 percent tariffs on imported aluminum proposed by President Trump have suddenly changed the calculus of the plant’s operation. Potentially shielded from the rest of the world by taxes, the Malaga mill may be cheap enough compared to its American peers to smelt aluminum again, and this may bring workers back to the plant.

Guest Writer

Eric Schuck teaches economics and coordinates the Environmental Studies Program at Linfield College

While that may sound like a great idea to those employees, it’s actually a terrible prospect for America as a whole. To start, there are far more industries that use aluminum than produce aluminum. Take the transportation sector, for example. Transportation accounts for about 40 percent of all U.S. aluminum consumption. Consider what a 10 percent increase in input costs means to firms like Boeing and Ford. On top of that, Boeing now faces the prospect of a countervailing 25 percent tariff on aircraft by China if the U.S. carries out its threat of aluminum tariffs. Driving up production costs for Boeing while simultaneously making them less competitive internationally is an awfully expensive way to reopen an aluminum plant.

Even within Malaga, reopening the plant has costs. Not only is Malaga in the center of Washington, it’s also at the center of the state’s tree fruit industry. Thousands of acres of apples and cherries cover the counties around Malaga. Those orchards are now at risk because of the proposed steel and aluminum tariffs: on top of the proposed aircraft tariffs, China is also threatening a 25 percent tariff on fruits and nuts. The United States exports nearly $1 billion in fruits and vegetables to China, so the proposed U.S. tariffs literally mean trading off jobs at the Malaga aluminum plant for jobs in the orchards surrounding it. Yet again, this is an awfully costly way to reopen an aluminum plant.

So, right about now, a lot of readers may be wondering why a small town over 300 miles away warrants so much attention in their local newspaper. It’s simple: everything that applies to Malaga could just as easily be said about McMinnville. The only difference is that instead of aluminum and apples, we could substitute steel and hazelnuts. When we discuss international trade, it’s very easy to think about it as some set of remote and distant problems unrealistic to us in Yamhill County. But modern economies are remarkably interlinked. Something that may seem like a logical way to help one firm may actually hammer ten others next door. Issues that appear achingly distant at first glance really exist just a few miles away.

Trade is an inescapable feature of modern life. What we need to understand, though, is when we try to protect firms struggling to compete internationally, we may wind up penalizing those that can. America is at its best when our system rewards success. Rather than impose tariffs to protect aluminum and steel, let’s embrace the excellence of our airplanes and apples. That’s a way to make America greater.

Comments

A New Generation

Since we are criminalizing the people who harvest said fruits, I'm not sure the 25% tariff will matter. When you can't get your harvest in, due to lack of pickers, everyone suffers. Fellow farmers in Washington State are in a real bind.

I don't think the displaced steel workers want to pick apples.

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