“Just last Friday, we had a plant, a groundbreaking in Ashland, Kentucky, the heart of poverty in America in Appalachia. $1.5 billion aluminum rolling mill because of the president’s tax and tariff policy.”
–White House aide Peter Navarro, interview on Fox News, June 4, 2018
“This is a story that’s truly remarkable and Donald J. Trump has brought in tax cuts, deregulation and trade policies that are working for the American working people. And guess what, on Friday they opened a $1.5 billion groundbreaking aluminum rolling mill in Ashland, Kentucky.”
–Navarro, interview on Fox News, June 3
The Trump administration, led by the president, is quick to claim credit for good news even if its policies may have had little to do with it. So our antenna went up when we saw Navarro, the White House director of trade and industrial policy, repeatedly attribute the building of a rolling aluminum plant in Kentucky to the president’s tariff and tax policies.
It takes time to build and plan a factory. But the president only announced tariffs of 25 percent for foreign-made steel and 10 percent for aluminum on March 1, so how is this possible?
Navarro noted to The Fact Checker that Trump on April 20, 2017, launched a “Section 232” investigation into whether imports posed a national security risk. The order stated the aluminum industry in the United States suffered from “artificially low prices” caused by imports and asked the commerce secretary to submit a report with recommendations. The announcement let to a spike in the price of aluminum stocks.
Just six days later, on April 26, a state-financing deal for the plant in the northeastern part of the state was officially announced. Kentucky agreed to provide $15 million in incentives to Braidy Industries in exchange for a $1.5 billion plant. The company also got a sweet deal from the local power company – essential because aluminum production requires a lot of electricity.
But here’s the rub: Before Trump took the oath of office, the company had announced it had purchased 202 acres of industrial park land for the plant.
“As far as the original decision to build the mill, initial investigations began approximately in the last quarter of 2016, with the site and business case evaluation,” said Jaunique Sealey, Braidy’s executive vice president for business development.
Much of the news reporting on the plant has focused on the fact the company decided to build the plant in Kentucky because the state passed a right-to-work law. Such laws limit the power of unions because employees are not required to contribute union dues even if they are covered by a contract.
In May 2017, the Wall Street Journal editorial page featured an article under the headline, “The Mill That Right-to-Work Built.” The article pitched the Braidy plant as an example of entrepreneurship made possible without rigid union rules – and without protectionism such as tariffs.
Braidy chief executive Craig Bouchard “predicts that the old American steel and aluminum giants will eventually disappear and be replaced by young, nimble companies with nonunionized workforces,” the article said. “In other words, President Trump could revive American manufacturing simply by letting creative destruction run its course. Protectionist policies that prop up haggard businesses could slow this regeneration and stall the advances Mr. Bouchard sees coming — which would be a loss for far more people than those 550 workers in Ashland.”
Kentucky Gov. Matt Bevin (R) makes the same point on his Facebook page celebrating the plant agreement: “THIS is what it’s all about. Right-to-work legislation will continue creating opportunities across Kentucky.”
“Right-to-work was a necessary condition,” Sealey said. We only looked at potential sites in 3 right-to-work States.” She added that “the single most important ingredient was the available skilled and dedicated work force. The State proved to us that there are eight times more metal working families employable in the Ashland region than anywhere else in the United States.”
While Navarro cited the recent ground-breaking for the plant, that event was also sparked by state incentives. Braidy faced a deadline of June 30 for the ground-breaking or else it ran the risk of losing the state’s investments. The plant itself is not expected to be operational until at least 2020.
Wall Street analysts who cover the aluminum industry were dubious of Navarro’s suggestion that the prospect of tariffs under a Trump administration was a necessary spark for the plant investment.
“Poor claim. This was set in motion well before this administration came into effect,” said Philip R. Gibbs at KeyBanc Capital Markets in Cleveland.
Since this is a rolling aluminum plant, not a smelting plant, the tariffs will actually increase the plant’s costs, as Bouchard acknowledged in a recent CNBC interview. “Our costs for an aluminum rolling mill in Ashland, Kentucky, will go up because expenditure for our prime input, prime aluminum, will go up,” he said. But he indicated the company would pass on the costs to consumers and said that overall the tariffs are a good thing because it will raise the overall price of aluminum.
Gibbs, however, noted that the tariffs will also likely increase the cost of building the plant.
“The cost of project has increased, however, if they are announcing it costs closer to $1.6 billion now. That could be impacted by the higher price of steel and shortage of construction-related contract labor,” Gibbs said. “Tariffs are never a good thing. Maybe a short term temporary evil because of Chinese proliferation in upstream metals manufacturing over the two decades, but historically have proven to be incredibly destructive to underlying demand.”
“Steel prices rose during the past year and increased the construction cost of the mill in the process,” Bouchard told The Fact Checker. “Also, we lived through an increase in cost due to a strong euro, because most of our equipment is German. But all that was countered by the rise in aluminum prices and our pre-sales of the mill. And tax reform was very positive for us. So the net cash result was very positive.”
Sealy, the Braidy executive vice president, said the tariffs played “a supporting role” in building the plant.
“Our corporate leadership does believe that the recently-enacted tariffs have played a supporting role in the construction of our mill,” Sealey said. “Specifically, two months ago, our mill was 180 percent sold out for seven years. Following the announcement of the tariffs, our mill is now 230 percent sold out for seven years, with customers now pushing us to move forward to binding agreements. Tariffs, along with tax reform, have had a net positive impact on our business, profitability and growth trajectory.”
Bouchard, in an email, said he supported the aluminum tariffs because he is concerned that there is only one domestic supplier of “high purity” aluminum and 85 percent comes from imports. But, he added, “I believe the current situation would be more favorable to all if we stepped back and rightly viewed the Canadians as part of us. They are our strongest ally. They ship 2.7 million tons of prime aluminum into the U.S. each year.” He said Canada should receive an exemption.
As we have noted before, the North American aluminum market is integrated, with much of the smelting taking place in Canada, one of the United States’ closest allies, where electricity costs are lower because of hydropower. (Aluminum smelting is an energy-intensive industry.) Charles Bradford of Bradford Research in New York said many U.S. factories closed because long-term electrical contracts expired and they “could no longer compete on cheap power.”
The Pinocchio Test
Navarro repeatedly suggests this plant was built because of the president’s tax and tariff policies. But the plant was put in motion well before Trump took the oath of office, for reasons having nothing to do with his presidency. The president’s policies appear to have made the plant more economically viable, but it appears it would have been launched without those policies. We wavered between Two and Three Pinocchios and ultimately settled on Two, given the company’s statement about a supporting role. In his television appearances, Navarro should not be so sweeping in his declarations about the link between Trump and the Kentucky plant.
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