Increasing Tariffs Alone Isn't Enough to Protect American Aluminum Industry
Aluminum Tariffs: A Double-Edged Sword for the U.S. Industry
Lucrative industries often require the right resources and strategies, and the aluminum industry is no exception. The U.S., with its rapidly growing demand for aluminum, has been grappling with the repercussions of President Donald Trump's decision to slap a 25% tariff on aluminum imports, including those from Canada. This contentious move has sparked debates about tariffs, supply chains, and domestic production, all of which hold lasting effects on the industry.
Let's face it, the real issue lies within the energy source powering our aluminum industry. Yet, the U.S. primarily produces recycled aluminum, seldom primary aluminum (the kind made from raw ore, not recycled aluminum). Despite its fundamental importance in our daily lives - primary aluminum is the metal that manufacturers use to produce cars, beverage cans, electronics, appliances, and much more - the U.S. import reliance cannot be ignored, with Canada supplying approximately 60% of the primary aluminum used and 58% of all aluminum imports.
The opinions regarding tariffs within the industry are as varied as the alloys of aluminum itself. However, one thing is certain: the tariffs will lead to increased prices for everyday items such as beer and soda cans, cars, and electronics. Some producers argue that these higher prices will drive consumers towards locally produced goods, while others warn that these prices will turn consumers away from aluminum entirely.
History has a lesson to teach us. The Trump administration had previously levied Section 232 tariffs on aluminum in 2018, with the intention of aiding the industry. But, these tariffs failed to prevent the overall downturn in the U.S.' primary aluminum industry. Since then, three U.S. primary aluminum smelters have closed or curtailed operations, leaving only four remaining, located in Kentucky, Indiana, South Carolina, and New York.
The real answer for revitalizing the U.S. primary aluminum industry lies not in tariffs, but in electricity.
Primary aluminum production is incredibly energy-intensive, with electricity accounting for up to 40% of its production costs. Despite producing only a little primary aluminum with high-carbon energy sources like coal and natural gas, primary aluminum demands a substantial amount of electricity. Canada, by contrast, primarily uses zero-emission hydroelectric power to produce its aluminum, making it both more environmentally friendly and cost-effective. Manufacturers have been pleading for a domestic supply of low-carbon primary aluminum, and this demand will only intensify with these new tariffs.
To boost domestic aluminum production, governments should prioritize energy solutions instead of tariffs that raise costs for consumers and businesses. Affordable, stable electricity is crucial for encouraging U.S. producers to transition towards clean energy sources and improving energy efficiency to lower costs and emissions.
In the game of aluminum, energy is the ace in the deck.
- The energy source powering the aluminum industry is a critical factor, as rising tariffs could drive manufacturers to prioritize the use of low-carbon primary aluminum, which is primarily produced using zero-emission hydroelectric power in countries like Canada.
- The primary aluminum production process is energy-intensive, with electricity accounting for a significant portion of its costs. Affordable and stable electricity, particularly from clean energy sources, could help decrease production expenses and encourage U.S. producers to ramp up domestic aluminum production.
- Policymakers might consider prioritizing energy solutions over tariffs as a means to revitalize the U.S. primary aluminum industry, since tariffs may raise costs for consumers and businesses while sustainable energy sources could promote economic growth and environmental sustainability.
