Aluminum and Steel Tariffs: The Target is Canada

Trump’s latest 25% tariff plan on aluminum and steel is part of the economic coercion strategy on Canada. It will fail. Of course.

Feb 10, 2025

You’ll never take us alive, you big hoser!

The desire to slap 25% tariffs on steel and aluminum appear - at least in the case of aluminum - to be squarely aimed at Canada, who is currently in limbo as the 25% blanket tariff threat was put on hold last week.
The question over the next month is whether Trump will honor the USMCA, terminate it, or add more one-off special product line tariffs to protect political allies or simply to exercise his love of tariffs.
The steel and aluminum stocks are immediately reacting for a reason as prices will head higher even if in “Trump world” higher tariffs do not automatically bring higher prices and do not translate into higher unit costs for someone else. The story of tariffs as frictionless wheels keeps turning. The tariff revenue line for reconciliation also keeps growing.
From what we see, the “protected” US operators total 3 with a combined market cap around $12 bn across Alcoa and the much smaller Century and Kaiser. As we cover below Alcoa explains the risks of Canadian tariffs. If we back out Alcoa, the protected companies are a rounding error.

We thought a follow-up was in order on Canada given the latest talk of tariff moves on aluminum and steel. The above chart reproduces the Top 30 imports from Canada (see Trade Exposure: US-Canada Import/Export Mix 2024 2-7-25). Clearly the combination of steel and aluminum are leading imports from Canada, so with all the mindreading going on around tariffs and economic coercion, it is pretty clear that this latest move has a disproportionate focus on Canada.

The table above shows both aluminum and steel in the top 10 of Canadian imports. The resource-rich Canadian economy is very much in evidence in the table with crude oil, aluminum, other nonferrous metals, resins and synthetic rubbers, fertilizer, other inorganic chemicals, other organic chemicals, and a range of other raw and intermediate material inputs. Tariffs make those costs higher, and someone will necessarily pay more for the materials at the corporate buyer level as an expense and/or at the customer level.

The need for low-cost electricity is always a major part of the aluminum production story, and that is why Canada has been the epicenter of investment and operations by the major producers. Low cost hydroelectric has always been an edge for them as it was for various Russian producers in numerous metal operations. The move by Trump is likely a pure protectionist play just as it was in Trump 1.0. The last time Trump used a Section 232 national security angle to justify his tariff decisions under the law (the law has been less a focal point or priority so far in Trump 2.0).

Apart from making the world safe for aluminum cans, we await the legal angle this time unless they just reissue the old report from last time. In Trump 1.0, some GOP Senators tried to introduce explicit legislative checks from Congress on the use of Section 232, but Trump crushed Toomey and Corker in the Senate while in the White House Gary Cohn was chopped at the knees. The spineless Senate crew of Trump 2.0 won’t make a sound.

It is a challenge to avoid seeing this as anything but tied into Trump’s hallucinatory, deluded ambitions to make Canada a 51^st state with rights equivalent to Wyoming, a state with a population lower than the District of Columbia (see US-Canada: Tariffs Now More than a Negotiating Tactic 1-9-25).

As a frame of reference, Canada is more populous than California and around 70x that of Wyoming. All for 2 Senate seats? Sweet deal! Canada would be the largest and most populous state and run from coast to coast and up to the Arctic, so it is an insult by definition even away from the explicit insults Trump routinely throws at our NORAD partner and NATO ally.

A word from Alcoa…

The issue is not as simple as “protecting US companies” as many may assume. Alcoa is the #1 US player and operates on a global scale. The comments below are from the company’s 4Q24 earnings call:

When you transition from Alcoa's global footprint to look at the primary aluminum supply flows into the United States, you can see the U.S. currently has a significant inflow from Canada. The current discussions and proposals on tariffs by the U.S. government may have significant impacts on how metal is flowing from one country to another. Currently, the U.S. imports 2/3 of its primary aluminum from Canada. This was true both before and after the Section 232 tariffs on aluminum implemented by President Trump in his first term, who also granted an exemption to the tariffs for Canada and select other countries.
If there were to be tariffs on Canadian aluminum imports to the U.S., this would represent a threat to U.S. industrial competitiveness. A 25% tariff on current Canadian export volume to the U.S. could represent $1.5 billion to $2 billion of additional annual cost for U.S. customers. In addition, increasing costs on trade with Canada and Mexico would particularly hurt the U.S. transportation supply chain, the largest end market in North America, and specifically the automotive market. Trade flows would likely be impacted such that U.S. aluminum imports would increase from countries and regions that have a lower import duty level like the Middle East and India, while Canadian metal could reroute to Europe and other countries.

The above is from a US aluminum operator. There is a reason that Alcoa has Canadian capacity that is a multiple of US capacity. It is about costs and efficiency. They provide a pretty well-informed view of the industry to say the least. As an aside, a former CEO of Alcoa was Secretary of the Treasury under George W Bush in his first term.

The action on aluminum is a reminder that much of what Trump does around tariffs is disconnected from industry analysis or broader macro and economic context. That is presumably not much of a new insight and at this point more an empirical fact of life. Visceral analysis rather than” Price x volume minus Cost” is the main approach to these topics.

We await the final details on the latest tariff juggling act.

Tariff links:

US-Mexico Trade: Import/Export Mix for 2024 2-10-25

Trade Exposure: US-Canada Import/Export Mix 2024 2-7-25

US Trade with the World: Import and Export Mix 2-6-25

The Trade Picture: Facts to Respect, Topics to Ponder 2-6-25

Tariffs: Questions to Ponder, Part 1 2-2-25

US-Canada: Tariffs Now More than a Negotiating Tactic 1-9-25

Trade: Oct 2024 Flows, Tariff Countdown 12-5-24

Mexico: Tariffs as the Economic Alamo 11-26-24

Tariff: Target Updates – Canada 11-26-24

Tariffs: The EU Meets the New World…Again…Maybe 10-29-24