Canadian industry warns aluminum tariffs could ruin demand, raise prices

U.S. President Donald Trump’s move to double import tariffs on aluminum to 50 per cent will rattle key industries like defence and construction and upend more than a century of cross-border industrial cooperation between Canada and the United States, business and political leaders warn.

 

The President signed an executive order raising the levies on steel and aluminum late Tuesday, causing shockwaves in corporate boardrooms and political back offices.

 

Canada is the largest supplier of both metals to the United States, accounting for about half of U.S. aluminum imports last year and nearly 25 per cent of steel imports in 2023.

 

“This defies all logic,” Quebec Premier François Legault told reporters in Quebec City on Wednesday, predicting the decision will trigger economic fallout on both sides of the border including job losses and higher prices for automobiles.

 

This is what happens when you “destabilize the entire trade in goods and services,” Mr. Legault said.

Canada is the world’s fourth-biggest aluminum producer, generating an annual output of 3.3 million tons of primary aluminum and supporting 9,500 direct jobs. Mining giants Alcoa, Rio Tinto, and Aluminerie Alouette operate 9 plants in Canada, 8 of them in Quebec.

 

Mr. Trump has said his goal is to stop imports of the metals into the U.S. in a bid to return manufacturing jobs to his country. The tariffs could, however, backfire on the U.S. by inflating prices for consumers.

 

The Aluminium Association of Canada called the tariff increase a “misguided measure” that threatens the security of North America’s integrated supply chain.

 

The group, which represents major producers, said a 50-per-cent tariff would destroy demand across the continent, no matter whether the metal is made in Canada or the U.S. and disrupt key sectors, including defence, construction and automotive.

 

“There’s going to be a pushback because of the cost,” said Jean Simard, the association’s president. If the tariffs stay, they’ll result in “a recessionary, and probably a stagnation, situation where metal will hardly move over the border,” he said.

 

Most of Quebec’s aluminum plants have access to Europe through the St. Lawrence Seaway and could pivot to that market or others, Mr. Simard said.

 

“Do we want to do that? The answer is no… All our energy is focused on resolving the situation with the U.S.”

 

Most of Quebec’s aluminum smelters were financed, built and developed by American investors over decades with an understanding between United States and Canada underpinned by an economic pact now under threat, Mr. Simard said.

 

In sum: The U.S. has the population while Canada has the energy to make the metal with its numerous hydroelectric installations.

 

Aluminum production depends heavily on securing a competitively-priced and secure source of power for the smelting process.

 

Canadian producers were still sending raw aluminum to the U.S. following the previous 25-per-cent levy introduced in March.

 

It was a “barely manageable” situation that forced a careful control of cash flows between the moment companies paid the U.S. government at the border and got reimbursed from customers, Mr. Simard said.

 

But a 50-per-cent tariff makes Canadian exports to the United States economically unviable, Mr. Simard said.

 

If it remains in place, Canadian producers will likely be forced to turn to other markets, leaving the United States relying on aluminum from more distant sources like China, Russia, and India for a material critical to national security, he said.

 

“It jeopardizes 125 years of cross-border industrial cooperation and will trigger a fundamental shift in global trade flows,” Mr. Simard said.

 

The Canadian industry supports the U.S. goal of increasing the production of current U.S. aluminum plants, some of which are operating at well below capacity due to energy costs, according to the Aluminium Association.

 

But it says punitive tariffs don’t create the certainty needed for long-term, capital-intensive investments.

 

The last time anyone built a primary aluminum smelter in the United States was 45 year ago. While the U.S. produces roughly 1 million metric tons of primary aluminum annually, it consumes five times that amount.

The priority for both the Canadian and U.S. governments should be to address unfair trade practices by China, whose state-subsidized overcapacity has distorted global markets, forced smelters to shut down and undermined producers in North America, the Aluminium Association says.

 

The stakes now are exponentially higher than the last time the United States slapped tariffs on Canadian aluminum, in 2018. Not only do the import levies hit primary aluminum produced by miners such as Alcoa and Rio Tinto, they also apply to products made from aluminum.

 

There are roughly 1,700 companies shaping aluminum into components or finished products in Quebec, cranking out everything you can think of with the malleable metal – from ambulance doors to window frames. Some of them have already been forced to curtail production and cut their factory employees’ work hours as American contracts disappear.

 

More pain is coming with the increased levies, said François Racine, president of industry lobby group AluQuébec. Canadian aluminum product makers who’d been eating the cost of the tariffs to maintain their U.S. customer relationships might find that impossible now, he said.

 

“This is getting to be fairly catastrophic,” Mr. Racine said in an interview. “These measures create an enormous amount of inflation” and will raise costs for a broad range of goods in both Canada and the United States because the market price for aluminum in the two countries is linked, he said.

 

 

 

 

This article was first reported by The Globe and Mail