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 landmark free trade deal last spring. Now, less than two months after the deal entered into force, the White House is reneging on commitments to a critical trade partner, stoking business uncertainty for the markets and endangering American jobs in the process.

This latest move is a reimposition of the 10 percent tax on the majority of raw Canadian aluminum imports. Such tariffs were originally imposed on Canadian exports two years ago as part of the national security tariffs on steel and aluminum products. But after lengthy international talks, much resistance from Congress, and a dramatic ultimatum by Senator Charles Grassley, the White House agreed to remove these tariffs on Canada and Mexico in order to ease the legislative approval of the deal.

But there was a catch. The deal included escape clauses allowing a party to reimpose tariffs if imports of steel or aluminum surge “beyond historic volumes of trade over a period of time.” This paved the way for a group of industry players to wage the polished lobbying campaign advocating the restoration of tariffs on Canadian aluminum as the deal was enacted. The White House, counting on misleading math, claimed a surge in imports of primary aluminum by comparing these volumes from the period in which the national security tariffs were in place to the period after.

The leading aluminum industry group noted that this lobbying campaign represents just two aluminum makers in the United States. A public letter signed by over 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 the market on the continent.

The issue at hand is primary aluminum, produced by refining bauxite and smelting into at least 99 percent aluminum. Making primary aluminum is energy intensive, which is why smelters tend to be located where there is abundant and affordable hydropower. The United States, which was once the top producer of primary aluminum in the world, no longer retains this competitive advantage and accounts for just a minute fraction of primary aluminum production. The newest American primary aluminum smelter is roughly four decades old. There are no plans to construct more smelters, which have been estimated to cost more than $4 billion each.

In addition to very little impact on primary aluminum production capacity, the tariffs are also more likely to endanger jobs than create them. Several observers point out that far more workers are employed in the midstream to downstream aluminum industry than employed with direct production. Increasing the cost for raw materials makes employing these workers, an estimated 97 percent of aluminum workers, more expensive.

As the American aluminum company executives have said, “The industry has no choice but to import a significant amount of primary aluminum to meet demand. The only question is from where?” But the administration has held other ideas than those from the majority of this industry, which means trade frictions and business uncertainty are imminent.

Indeed, the Canadian government has given notice of its intent last month to retaliate with counter tariffs for more than $2 billion worth of American exports. The list targets aluminum and products like fridges, bicycles, golf clubs, and washing machines. So much for the recent remarks of Trump at a manufacturing plant that his latest trade policy move “defends American industry” by reimposing these tariffs on Canadian aluminum.

With the chaos of this administration, the certainty of the trade deal, while flawed in substance, should have been one bright spot for American firms and workers. The latest provocation of tariffs demonstrates that this is not the case. The deal has not ensured smoother trade relations with partners, and an unwillingness of our lawmakers to intervene continues to empower such dire economic entropy. The reckless tariff actions of the White House once more raises concerns. Will Congress rein in tariff abuse?

Halie Craig is an associate fellow on the policy team with R Street Institute.