How Trump’s Protectionism on Aluminum Works in Two Pictures

Production has decreased every year since 2021 and prices have soared.

Aluminum, Trump’s Dumbest Tariff

The CATO Institute comments The World’s Dumbest Tariff Has Been Revealed

With the Iran war threatening supplies of critical, energy-intensive materials, one might assume the US government was prepared for this risk and has been working hard to soften the blow. In the case of aluminum, that assumption would be incorrect. Instead, Washington is making things worse.

The United States has spent much of the past decade constructing a protectionist wall around the domestic aluminum industry. First, in 2018, President Donald Trump invoked Section 232 of the Trade Expansion Act of 1962 to impose 10% “national security” tariffs on aluminum products from most countries. Then last year, he raised the tariffs to 50% and eliminated exemptions for allies, while also expanding the levies to cover hundreds of “derivative” products – ranging from canned goods to industrial wires – that contain the metal.

Over roughly the same period, the US implemented a web of “trade remedy” (antidumping and countervailing duty) measures on imports of aluminum extrusions, foil, and other products. Imports, in turn, have declined substantially – especially after the 50% levies took effect.

So far, this is a standard US tariff story, but aluminum isn’t a standard product. According to the US Geological Survey, imports constituted approximately 60% of domestic consumption last year, even with high tariffs. This dependence does not reflect “unfair trade” but deep structural realities. Aluminum production is extremely electricity-intensive, and US power prices – along with fierce competition for electricity from AI and other high-value industries – have made smelting uneconomical relative to regions with abundant power and access to the core inputs bauxite and alumina.

In just the last few years, primary aluminum smelters in Washington, Missouri, and Kentucky have each shut down, and production has declined. Now, only four smelters are in operation, just two at full capacity. And this contraction occurred despite tariff protection expressly intended to boost output.

Most obviously, the tariff wall has caused domestic aluminum prices to skyrocket, rising much faster than global prices did last year, Bloomberg News reported in early February. The “Midwest premium” – the surcharge American buyers pay above the London Metal Exchange (LME) benchmark – more than doubled after the 50% tariffs took effect, and producers have since applied another surcharge on top of that.

US Aluminum Prices

Economists have found that Trump’s first-term aluminum tariffs hurt manufacturing on net.

American supply chains are also more fragile. In one absurd example, Ford Motor Co. reported last month that a fire at its main US supplier would force it to pay $1 billion more to import aluminum in the meantime. (And that was before Iran.) Manufacturers without Ford’s resources and clout have been hit even harder, unable to get needed supplies and pausing expansion plans in response.

Making matters worse, an easy solution to the aluminum shortfall lies next door – or, at least, it did. Canada has long been America’s largest aluminum supplier, thanks to abundant hydroelectricity that gives its producers a decisive cost and environmental advantage. Canadian aluminum is also deeply integrated into US defense supply chains because the nation is a close ally that was officially made part of America’s Defense Industrial Base in 1993. With Canada specializing in primary smelting and the US focused on downstream fabrication and manufacturing, bilateral trade and investment flourished. Today, Pittsburgh-based Alcoa Corp. owns three Canadian smelters that collectively churn out almost 30% of the nation’s total output.

Comparative advantage was working exactly as advertised – until we blew it up. As Bloomberg News reported in September, Trump’s 50% tariff and removal of an exemption for Canada drove producers there to send US-bound shipments to Europe instead. In just a few months, Aluminerie Alouette – North America’s largest smelter – saw its European sales rise from 4% of production to 57%. Rio Tinto Plc largely stopped shipping Canadian aluminum to the US, and even Alcoa diverted around 100,000 metric tons to non-US destinations.

These shifts are already coming back to bite the United States. With tariffs pushing Canadian aluminum elsewhere last year, American companies became “increasingly reliant” on imports from the Middle East, with almost a quarter of unwrought aluminum coming from the UAE and Bahrain. Those sources are now imperiled by the Iran war, and Canadian producers, already operating at full capacity, won’t shift back to the US market while the tariff wall remains — if ever.

Overall, aluminum protectionism has been a confounding own-goal. Tariffs haven’t just raised prices and harmed American manufacturers; they’ve actively pushed a top producer and close ally out of our market, with shrinking domestic sources unable to fill the gap. Given the metal’s role in the US defense industrial base, aluminum-related risks are likely higher today than they were before “national security” tariffs were ever enacted.

Reflections on Comparative Advantage

The US cannot compete with Canada on either raw minerals or aluminum manufacturing.

But economic realities do not stop Trump. As a result of his inane tariffs, the US pays roughly 75 percent more for aluminum than the rest of the world. Production declined.

Moreover, the energy demands of aluminum are intense. The smelters will have to compete on electricity with all of the data centers now under construction.

Realistically, Trump should reset the tariffs to zero. If aluminum industry collapses, so what? We would all be better off with a huge price drop.

It makes as much sense to compete with Canada on Aluminum as it does to compete with Thailand and Indonesia in natural rubber production.

Speaking of which, tires and finished rubber goods, particularly from China, Vietnam, and Thailand, face 26%–46% tariffs.

The Peterson Institute notes tariffs and shipping now account for 15–20% of the landed cost for imported rubber products. 

Trump wants to drive production of everything here, no matter the cost. It’s economic idiocy.

The War in Iran compounds the inflationary effects of tariffs.

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