3D Printing of Aluminum and the Potential Tariffs

As a result of the February 2018 U.S. Department of Finance findings, in a Section 232 investigation into U.S. aluminum and steel imports pricing the path is clear for the Trump administration to impose tariffs on aluminum imports. These developments follow new tariffs in imported solar panels. Please see our article, U.S. Solar Cell 3D Printer Usage.

Recent tariff enforced on washing machine imports

Similarly, back in January, the U.S. announced a 20% tariff on the first 1.2 million imported washing machines followed by a 50% tariff on machines above that number. Please see our article, 3D Printing of Washing Machines and R&D Tax Credits. Wilbur Ross the U.S. commerce secretary is recommending tariffs of at least 7.7 % on aluminum imports from China, Hong Kong, Russia, Venezuela, and Vietnam.

The practical problem is that without some very sophisticated economic modeling the actual results of these kinds of punitive levies aren’t ever really known.  Also the imposition of cross border penalties invariably leads to tariff retaliation against other product categories. For example, the European Union is already talking about retaliatory measures against Kentucky bourbons and Wisconsin cheeses which is a purposeful message to Senate Majority Leader Mitch McDonnell of Kentucky and Speaker of the House Paul Ryan of Wisconsin. Moreover, the U.S imports a large amount of aluminum from Canada which is our longstanding important trade partner where the U.S. normally has friendly trade relations. Canada has already voiced its displeasure with possible new tariffs. Secretary of Defense James Mattis has indicated that he considers to decline of the American aluminum industry a matter of National Security but he is also concerned about the impact on our allies.

To analyze the impact of potential new tariffs on aluminum 3D printing we can start with some facts. 3D printing of aluminum is a rapidly growing category, particularly in the aerospace sector.  The aerospace industry often requires unique product applications and the achievable component weight reduction from aluminum product solutions which is particularly valuable. The margins on aerospace are typically high and justify experimenting with more 3D printing aluminum applications. Despite the high margins a potential 10% raw material price increase isn’t helpful particularly when the U.S. aerospace and 3D parts printing sector doesn’t face much competition from non-U.S. parts suppliers. The U.S. uses aluminum for other industries, including automobiles and appliances markets. The construction, oil and utility industries use aluminum for beams, pipelines and wires as well as for cans for the food and beverage industry. To support 3D aluminum product innovation Alcoa invested $60 million in a 3D printer innovation center in Western Pennsylvania.

Conflicting Tariffs for Appliance Manufacturers

On the U.S. domestic product side washing machine manufactures and other appliance and food equipment manufacturers are large users of aluminum. The recent increase in imported washing machines tariffs was designed to help level the playing field for U.S. washing machine manufacturers like Whirlpool. If the U.S imposes a tariff, this will increase aluminum raw material import prices that will presumably hurt the domestic appliance industry. Plus, placing these barriers will affect our trading partners including the European Union and China. It may erode relations with our foreign allies and increase prices for American consumers. One way 3D aluminum printing product developers can help offset the potential tariff increase is to make sure that they obtain U.S. R&D Tax Credits for the new and improved 3D aluminum printed product designs.

The Research & Development Tax Credit

Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• Must be technological in nature
• Must be a component of the taxpayers business
• Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
• Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent.

On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.

U.S. Aluminum Smelter Market Share

A ship unloading by an aluminum smelter

The U.S. stopped being a leading aluminum producer a number of years ago. Approximately 15 U.S. aluminum smelters have closed since 2000. Most of the remaining U.S. aluminum producers are not running at full capacity. One of the main challenges for aluminum smelters is electricity costs. In 2017, only 741,000 tons were made in domestic smelters whereas 4.8 million metric tons of raw aluminum materials were imported.

Conclusion

Retaliatory product tariffs at the very least distort free cross border product flow.  There are additional tariff mitigation strategies including free trade zones and tariff refunds (duty drawback) when a U.S. manufacturer is exporting the final product. Impacted parties, including 3D printed product developers, need to be aware of possible tariff increases and use other tools to proactively plan around them.

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Charles Goulding and Alize Margulis of R&D Tax Savers discuss the aluminum 3D printing.