The U.S. government will reimpose a 10% tariff on some aluminium imports from Canada as of Aug. 16, U.S. President Donald Trump announced during a campaign event at a Whirlpool plant in Clyde, Ohio, on Aug. 6.
In response to the U.S. president’s announcement, the Canadian government has said that it will impose a $3.6 billion (US$2.7 billion) tariff on U.S. aluminium products starting from Sept. 16. In a written statement on Aug. 7, Canadian Deputy Prime Minister Chrystia Freeland promised “to swiftly impose dollar-for-dollar countermeasures.”
Trump’s 10% tariff will be levied on unwrought, unalloyed aluminium produced at smelters but does not apply to imports of downstream aluminium products, the U.S. president said, noting that the tariffs were reinstated to defend U.S. aluminium producers from cheaper products from Canada.
Augustine Lo, an attorney at law firm Dorsey & Whitney, told The Northern Miner that “while seemingly narrow, this class of goods constitutes the largest share of Canadian aluminium exports to the United States.”
“Assuming this 10% tariff proceeds, it could significantly impact the aluminium market, from competing U.S. producers of primary aluminium, to producers of secondary aluminium, from recycled goods that could compete with imported primary aluminium and to downstream users of aluminium across all industries,” Lo said.
Trump’s tariff announcement comes after the two countries reached a trade deal last year to lift a 25% tax on steel and a 10% tax on aluminium imports that the president imposed in 2018, and just one month after the new United States-Mexico-Canada Agreement went into effect. The agreement replaces the North American Free Trade Agreement (NAFTA), which governed commerce between the three countries for more than 26 years.
“We do know that President Trump likes tariffs,” Christine McDaniel, a Senior Research Fellow from the Mercatus Center at George Mason University in Virginia said in an interview. “He continues to tout their alleged benefits for the U.S. economy, American workers, and the U.S. Treasury despite all evidence to the contrary.”
Althoughthe president claimed that a surge of Canadian aluminium into the U.S. market would “kill all our aluminium jobs,” she continued, data from the U.S. Bureau of Labor Statistics show that there are far more people working in industries that use aluminium.
“For every one person working in the aluminium-producing industry, 177 people are working in aluminium-consuming industries, such as construction, transportation, auto and aerospace, electrical equipment, and household appliances,” said McDaniel, whose research focusses on international trade, globalization and intellectual property rights. “So, this tariff will be particularly harmful to downstream industries.”
Furthermore, the potential increase in the cost of raw materials could not have come at a worse time, she noted. American companies are already paying tariffs on steel and aluminium, and many Chinese imports and the economy is still suffering from shutdowns imposed due to the Covid-19 pandemic.
“It’s hardly surprising that most polls show that Americans are generally positive about free trade agreements, but increasingly critical of tariffs,” McDaniel added.
The U.S. Chamber of Commerce also warned that the tariff could increase costs for U.S. manufacturers. “The administration’s move to reimpose tariffs on aluminium from Canada is a step in the wrong direction and will raise costs for American manufacturers, are opposed by most U.S. aluminium producers, and will draw retaliation against U.S. exports,” Myron Brilliant, the industry group’s head of international affairs, told Reuters news agency on Aug. 6.
U.S.-Canada trade relations took a turn for the worse after Trump’s election in November 2016, and worsened further when the U.S. imposed tariffs on Canadian steel and aluminium in June 2018, with Washington citing a lack of progress in NAFTA negotiations as the reason for the tariffs.
In retaliation, Canada imposed taxes of up to $16.6 billion on steel, aluminium, and hundreds of other products from the U.S.
In 2019, the U.S. and Canada agreed to lift tariffs imposed the previous year. However, the U.S. retained the right to reinstate them if it observed a surge in imports, which the U.S. president cited as the reason for re-imposing the latest tariff.
In June 2020, the U.S. Trade Representative Robert Lighthizer told the U.S. Senate Finance Committee that “imports from Canada of the product that accounts for the largest share of Canada’s aluminium exports to the United States have surged above historical levels.”
However, in a letter to Lighthizer the same month, executives from 15 of the world’s largest aluminium companies, including Alcoa, Constellium, and Novelis, requested a continued exemption from tariffs for aluminium in North America, arguing that the current import levels are mostly consistent with historical trends.
“The decision to impose tariffs appears to be a political one,” Colin Hamilton, managing director and commodities analyst at BMO Global Commodities Research in London, said in an interview. “The decision’s timing is also a little strange, given that U.S. manufacturing was re-starting again following disruptions due to the coronavirus pandemic.”
As the U.S. represents only a small portion of the global market, Hamilton believes the tariff will have little impact on aluminium prices on the London Metal Exchange. He noted, however, that the Platts aluminium Midwest premium, which is the price of aluminium supplied to the Midwest of the U.S., has already gone up, jumping US$1.25 to US$13.25 per pound.
“Suddenly, you’re putting what amounts to an extra cost on consumers of aluminium products,” he said. “And it’s not like there is sufficient primary capacity in the U.S. that will ramp-up to replace this. It will just result in higher costs for downstream manufacturers, who are still experiencing relatively weak order books.”
This view is also shared by Jean Simard, president and CEO of the Aluminium Association of Canada (AAC). “There is no surge for 2020 over 2019, monthly anomalies do not make for a yearly surge, they are simply results of changing market dynamics in crisis times,” he said in a statement on Aug. 6.
Overall, exports of primary aluminium from Canada into the U.S. declinedby about 2.6% from May to June this year, Simard said, while primary aluminium import volumes from Canada in the first half of the year were nearly 5% lower than the same six-month period in 2017.
Canadian Prime Minister Justin Trudeau was combative in response to Trump’s announcement: “We will always stand up for our aluminium workers,” he tweeted on Aug. 6. “We did so in 2018, and we will stand up for them again now.”