Section 232 tariffs were initially imposed in 2018, with exemptions later granted to Canada and Mexico in 2019. For many in the aluminum industry, the reimposition of 10% tariffs at this stage is expected to be detrimental to the U.S. industry, making downstream industries (extrusion, rolling, forging, etc.) less competitive.
Canadian aluminum has long been a key competitive advantage for U.S. manufacturers. Some 97% of U.S. aluminum industry jobs are in mid-and-downstream production and processing, which depend on a mix of domestic and imported primary aluminum to meet demand, including from countries like Canada. While the U.S. produces 1 million tons a year of primary metal, at best, it consumes six times that amount.
“Once again the Trump Administration has missed the mark in protecting the U.S. aluminum industry,” said Jeff Henderson, president of the Aluminum Extruders Council. “With the entire domestic aluminum industry demanding that China’s unrelenting overproduction of aluminum products come to an end, the Administration fires its guns at Canada, one of our critical aluminum trading partners. The only impact from this measure will be increased U.S. aluminum prices, which will only make our manufacturing sector less competitive globally.”
Tom Dobbins, president and CEO of the Aluminum Association, also issued a statement in response to the White House’s decision:
We’re incredibly disappointed that the administration failed to listen to the vast majority of domestic aluminum companies and users by reinstating Section 232 tariffs on Canadian aluminum. After years of complex negotiations and hard work by government, industry and other leaders across North America to make the U.S.-Mexico-Canada Agreement (USMCA) a reality, this ill-advised action on a key trading partner undermines the deal’s benefits at a time when U.S. businesses and consumers can least afford it.
While we understand that the president is attempting to help the aluminum industry, the volatility of implementing, removing and then re-imposing trade barriers threatens U.S. growth and investment at a time when domestic demand is already down nearly 25 percent year-to-date. This Groundhog’s Day revival of Section 232 tariffs on a key trading partner does not address the underlying issue of China’s overcapacity and makes U.S. aluminum companies less competitive when trying to sell their goods to industrial customers across North America.
Information published by the Aluminum Association in recent weeks has noted that reports of a “surge” of primary aluminum imports from Canada — made by the American Primary Aluminum Association (AAPA), which represents only two aluminum companies in the U.S. — are grossly exaggerated. In fact, data released on August 5th by the U.S. Census Bureau showed that overall primary aluminum imports from the U.S. to Canada declined about 2.6% from May to June — and are below levels seen as recently as 2017.
“The Aluminum Association will continue to monitor trade flows and advocate for the removal of Section 232 aluminum tariffs on all market economy countries,” said Dobbins. “The industry strongly favors continued targeted trade enforcement that addresses the real problem in the market today – massive Chinese metal subsidies that drive massive overcapacity.”
While targeted trade enforcement activity, including successful antidumping and countervailing duty cases, has reduced imports of Chinese aluminum into the U.S. in recent years, China’s subsidy-driven overcapacity continues to grow. Over the past five years, aluminum overcapacity in China has grown by 60% and increasingly that metal is being exported to third party countries, further distorting global markets.
According to recent figures from the National Bureau of Statistics (NBS), smelters in China produced 3.02 million tons of primary aluminum, the highest amount in June ever. Total output is up 1.7% year-to-date. Despite this, Chinese producers brought some 680,000 tons/year of new aluminum production capacity on line in the first six months of 2020, according to researcher Antaike. That new capacity alone is equivalent to nearly 40% of total U.S. aluminum smelting capacity.
The Aluminium Association of Canada (AAC) also expressed disappointment that the U.S. has levied new tariffs on Canadian aluminum. “Year in and year out, Canada has been the most reliable source of primary aluminum for the U.S., providing low carbon, responsibly produced metal at world prices,” said Jean Simard, president and CEO of the AAC. “This U.S. focus on Canada only distracts from the real problem facing the aluminum industry: unfairly subsidized Chinese aluminum production leading to global overcapacity.”
Regarding the reports of a surge in Canadian imports into the U.S., the AAC confirmed that they are unsubstantiated. “We were already seeing a rebalancing in product mix from basic commodity ingot (P1020) back to value added product (VAP) through the recovery of the automotive industry,” said Simard. “There is no surge for 2020 over 2019, monthly anomalies do not make for a yearly surge, they are simply results of changing market dynamics in crisis times.”
In response to the reimposition of Section 232 tariffs against Canada, the Canadian government intends to impose punitive retaliation measures totaling up to C$3.6 billion (US$2.7 billion) on U.S.-made aluminum products.
“At a time when we should work together to jump-start our economies by strengthening our supply chains, here we are playing into the hands of Russia and China,” said Simard. “This move will not only benefit foreign traders, but will increasingly substitute Canadian metal with metal from Russia without addressing the real problem: China.”
The AAC intends to keep working with Canadian authorities and the Aluminum Association to ensure a rules-based, market-driven level playing field.