New tariffs forecast for Canadian aluminum
Just weeks before Canada’s long-negotiated trade agreement with the U.S. and Mexico is set to take effect, there is mounting speculation that Washington is preparing to reintroduce tariffs on Canadian aluminum in what’s likely to cause a political uproar with serious economic fallout for the domestic industry.
The U.S. is the primary export destination for Canada’s $13-billion aluminum industry, accounting for 83 per cent of its trade in 2018.
Nonetheless, in recent weeks, aluminum future prices on the Chicago Mercantile Market have risen, which some analysts attribute to behind-the-scenes lobbying efforts by two U.S. aluminum producers, pressure from other aluminum-producing countries, and the likelihood that U.S. President Donald Trump will impose new restrictions on Canadian aluminum.
“The market is betting there’s going to be some type of restriction imposed on the Canadians,” said Gregory Wittbecker, a U.S.-based senior analyst of the aluminum sector at the market research firm CRU Group.
Aluminum August futures at the Chicago Mercantile Exchange were trading at about US$1,592.75 per metric tonne, compared to US$1,546 on Tuesday in the spot market. That could indicate the market is factoring in quotas on Canadian aluminum.
In March 2018, in a move that ramped up trade tensions between the NAFTA neighbours, the U.S. announced a Section 232 investigation, which imposed 10-per-cent tariffs on nearly all aluminum imports, including from Canada.
Last May, the U.S. exempted Canadian aluminum exports. In December, the U.S. signed an upgraded trade agreement with Canada and Mexico designed to promote trade between the countries. The new NAFTA takes effect July 1.
Now, the tensions around aluminum appear to be growing again.
On May 27, the American Primary Aluminum Association released a letter to Robert Lighthizer, the United States Trade Representative, that called for the end of Canada’s exemption from Section 232 tariffs. In the letter, Mark Duffy, chief executive officer of the APAA, alleges that Canada’s aluminum exports to the U.S. have “surged” since the tariffs were lifted last May, and that it’s driving U.S. smelters out of business.
The Aluminum Association, a different trade group that represents 120 companies throughout the U.S. aluminum supply chain, has accused the APAA of inaccuracies and inventing the “great Canadian distraction.” It said Canadian aluminum exports to the U.S. have barely budged over a 30-year period, and sit at 64.7 per cent of the U.S. import market, in line with the 64.6 per cent in 1990.