Macro Playlist

As trade negotiations between Canada and the United States finally appear to be moving forward, this chart highlights what is likely one of the Trump administration’s most counterproductive trade policies: tariffs on aluminum.

The chart compares the global aluminum price, as measured by the London Metal Exchange, with the price actually paid by U.S. importers. The difference between the two is the Midwest premium, an additional cost that American buyers must pay to secure metal delivered into their market.

Since the tariffs were imposed, that premium has surged. While the global price of aluminum has increased only moderately, the cost paid by U.S. importers has soared. In fact, the full 50% tariff appears to have been absorbed by importers. At the same time, a relative shortage has emerged in the U.S. market, pushing prices even higher. Some Canadian exporters have redirected part of their shipments to other markets, including Europe.

The problem for the United States is that there are very few local alternatives to Canadian metal. Replacing these volumes with domestic production appears unrealistic in the short, medium and even long term. Building or restarting an aluminum smelter requires massive investment, several years of development and, above all, access to abundant and low-cost electricity, a resource that is scarce in the United States.

The result is that the biggest losers are American manufacturers that use aluminum to produce cans, automobiles, industrial parts or electrical equipment. Ultimately, consumers also end up paying the price.

That is why Washington is likely to eventually back down as it seeks to reach a trade agreement with Canada. When a measure is meant to protect domestic industry but mainly acts as a tax on American manufacturers, it becomes increasingly difficult to justify keeping it in place.