The Trump administration's proposal to impose a 25% tariff on all imported aluminum has sparked significant concern among industry leaders and economists. With the United States importing $27 billion worth of aluminum last year, primarily from Canada, the new tariff represents a substantial shift in trade policy. The move aims to boost domestic production but risks increasing costs for consumers and potentially leading to job losses.
Canada is the largest supplier of aluminum to the United States, contributing $11 billion in raw aluminum and aluminum-intensive goods last year. The US relies heavily on foreign aluminum due to Canada's lower energy costs for production. The proposed tariffs mark a 15 percentage point increase from previous levels and do not include any exceptions or exemptions, raising fears about their economic repercussions.
According to Alcoa, the tariffs could cost American customers an additional $1.5 billion to $2 billion annually. Coca-Cola, a major consumer of aluminum for packaging, plans to shift more of its product packaging to plastic and glass to sidestep rising costs. The potential impact on employment is also a pressing concern, given that the US aluminum industry directly employs 164,000 workers and indirectly supports another 272,000 jobs in related sectors such as mining, construction, and manufacturing.
"Destroy about 20,000 direct US aluminum industry jobs and could result in 80,000 indirect jobs being eliminated in the US," warned William Oplinger, CEO of Alcoa.
The US exported $14 billion worth of aluminum globally, indicating that the tariffs might not only affect imports but also provoke retaliatory measures from other countries. Bernd Lange, chair of the European Parliament's trade committee, has hinted at imposing tariffs on American goods if the US proceeds with its aluminum and steel tariffs.
"It's bad for the US," added Oplinger, highlighting the potential negative ramifications of the tariffs.
Alcoa acknowledges having some untapped domestic production capacity but characterizes it as "very old, very inefficient capacity that has not been run in a number of years." A significant proportion of Alcoa's production is based in Canada and shipped to the US, complicating the prospect of scaling up domestic production rapidly enough to meet demand.
"One of the issues around the uncertainty of the tariffs is it's very hard to make an investment decision even on something like a restart without knowing how long the tariffs will last," explained Oplinger.
In response to these concerns, Alcoa's CEO has advocated for at least partial exemptions for Canadian metal exports to the US, suggesting that two-thirds could enter the country duty-free. This measure aims to mitigate some of the adverse economic impacts while still supporting domestic industry goals.
"At a minimum" enact an exemption on Canadian metal exports to the US, allowing for two-thirds to enter the country duty-free, recommended Oplinger.
The history of US tariffs on metals, such as those imposed in 2018 with a 25% tariff on steel and a 10% tariff on aluminum, resulted in temporary reductions in imports and a slight increase in domestic production. However, the long-term implications remain uncertain as industries continue to grapple with fluctuating trade policies and global market dynamics.
