New Canadian aluminum tariffs threaten to harm trade benefits
President Trump has resurrected his national security tariffs on Canadian aluminum, in spite of having removed them as a condition for passage of the renegotiated NAFTA last spring. Now, less than two months after the trade pact’s entry into force, the White House is reneging on commitments to a key U.S. ally, stoking business uncertainty in North American markets and endangering American jobs in the process.
The president’s latest tariff action is a reimposition of a 10 percent tax on the majority of raw aluminum imports from Canada. The tariffs were originally imposed on Canadian exports in May 2018 as part of the White House’s global, so-called “national security” tariffs on steel and aluminum products. After lengthy international negotiations, stiff resistance from Republicans and Democrats in Congress and a public ultimatum from Senate Finance Committee Chairman Charles Grassley (R-Iowa), the White House agreed to remove these tariffs on Canada and Mexico in order to ease congressional approval of the United States Mexico Canada Agreement.
But there was a catch: The tariff-lifting agreements reached with Mexico and Canada contain escape clauses permitting either party to reimpose tariffs if imports of steel or aluminum “surge meaningfully beyond historic volumes of trade over a period of time.”
The escape clause loophole paved the way for a niche group of industry players to wage a polished lobbying campaign advocating for the restoration of tariffs on Canadian aluminum just as the ink was drying on the USMCA. Relying on some very misleading math, the White House claimed a “surge” in imports of primary aluminum by comparing import volumes from the period during which the national security tariffs were in place to the period immediately after.
The leading aluminum industry group immediately cried foul and noted that the pro-tariff campaign “represents only two aluminum companies in the United States.” A public letter signed by more than a dozen American aluminum company executives stated, “It is hard to think of a less opportune time to impose a barrier to rational and fair aluminum trade within North America.”
Specifically at issue here is primary aluminum, which is produced by refining (usually imported) bauxite into alumina and then smelting it into at least 99 percent pure aluminum. Producing primary aluminum is extremely energy-intensive, which is why newer smelters tend to be located in regions with abundant and affordable hydropower. The United States, which was once the world’s top producer of primary aluminum, no longer retains this natural competitive advantage and only accounted for 1.2 percent of primary aluminum output in 2017. As a result, the newest American primary aluminum smelter is roughly four decades old and there are no plans to construct new smelters, which cost an estimated $4.5 billion each.
In addition to having little-to-no impact on U.S. primary aluminum production capacity, the restoration of the tariff is more likely to endanger jobs than create them. Many observers have pointed out that far more Americans are employed in the mid-and-downstream aluminum industry than are employed in direct production. Raising the cost of raw materials makes employing these workers, an estimated 97 percent of all aluminum workers, more expensive.
As the aforementioned aluminum executives noted, “The U.S. aluminum industry needs a reliable source of input aluminum material to manufacture semi-fabricated products like aluminum foil, sheet, plate, wire, extrusions and other products. […] The aluminum industry has no choice but to import a significant amount of primary aluminum to meet demand – the only question is from where?
Unfortunately, the administration has had other ideas than those presented by American aluminum company executives, which means trade frictions and business uncertainty are imminent. The Canadian government this month noticed its intent to retaliate with counter-tariffs on $2.71 billion worth of American exports. The draft list targets aluminum and aluminum-containing products such as refrigerators, bicycles, golf clubs and washing machines. So much for the president’s recent remarks at a Whirlpool manufacturing plant: “I signed a proclamation that defends American industry by re-imposing aluminum tariffs on Canada […] Canada was taking advantage of us, as usual.”
In the chaos of the administration’s trade policy, the short-term certainty provided by the passage of the USMCA, though flawed in substance, should have been one bright spot for American businesses, workers and consumers. The White House’s latest tariff provocation demonstrates that this is not the case. The USMCA has not guaranteed smoother trade relations, and Congress’s unwillingness to intervene continues to empower unnecessary economic entropy. Yet again, the White House’s reckless tariff actions beg the question: Will Congress rein in tariff abuse?
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