You’d think one company happy with President Trump’s aluminum tariffs would be Alcoa, the American aluminum producer. Well, think again, and the reason is a case study in the perverse effects of trade protectionism.
About 85% of primary aluminum in the U.S. is imported, mostly from Canada. Alcoa runs two of the four operating U.S. smelters, but three-quarters of its North American primary aluminum production is in Canada. About 70% of that supplies U.S. customers. Until February its Canadian aluminum imports were exempt from Mr. Trump’s Section 232 tariffs.
Now Alcoa’s imports must pay a 50% tariff. CEO Bill Oplinger tells us that Alcoa can pass along some of its tariff costs — an estimated $215 million per quarter — to U.S. customers with which it has long-term contracts. Contracted prices adjust with the Midwest premium charged for aluminum delivered into the U.S., which have roughly doubled since February.
Alcoa is eating some of the tariff cost. To mitigate the impact, Mr. Oplinger says the company is able to redirect about 30% of its Canadian primary aluminum to other countries. But Alcoa is also competing against producers in China and elsewhere that are also hunting for alternative markets because of the U.S. tariffs.
Why doesn’t Alcoa expand production in the U.S. to avoid the tariff cost, as Trump trade adviser Peter Navarro urges? It takes about two years to secure permits for a new smelter and five to seven years to build one.
A new smelter would cost $5 billion, which is about 80 times Alcoa’s profit last year.
Mr. Oplinger says Alcoa makes decisions on 20- to 40-year financial time-lines. Mr. Trump may or may not keep his aluminum tariffs, and he may change the rates on a whim or exempt countries as part of the broader deals he’s trying to negotiate. This is why Americans haven’t heard plans from other aluminum producers to restart smelters.
Merely restarting a production line at Alcoa’s Indiana smelter would cost $100 million and take a year or more, yet it would add only 50,000 metric tons of capacity. That’s 1.2% of U.S. imports. Even if all American smelters ran at full capacity, the U.S. would still need to import about 3.4 million metric tons of aluminum — the equivalent of five large new smelters.
The U.S. would also need much more and cheaper electricity. Alcoa says producers would need firm contractual energy-price commitments of about $30 per megawatt hour for at least 15 years to be globally competitive. Manufacturers in the U.S. typically pay from $60 to $100 per megawatt hour.
Alcoa’s Canadian smelters are economic because they run on cheap hydropower, but Mr. Oplinger says the tariffs may cause the company to stop expansion plans even in Quebec.
Producing all of the aluminum that the U.S. now imports would consume about as much power as six large nuclear reactors produce in a year. Wouldn’t that electricity be better deployed powering data centers for AI?
As for Mr. Trump’s insistence that his tariffs will benefit American workers, employment in primary metals production has been flat since February while overall manufacturing jobs have fallen 13,000. Kicking America’s trade teammates isn’t a winning economic strategy.
