Trump wields the tariff hammer again, shocks the aluminium market

On 3 February 2025, US President Donald Trump signed an executive order imposing a 25% tariff on imports from Canada and Mexico, along with a 10% tariff on Chinese imports. However, following discussions with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum, Trump agreed to delay the tariffs on Canada and Mexico by 30 days, until 4 March, allowing time for further negotiations on border security and drug trafficking concerns.

A week later, on 10 February, Trump escalated his tariff agenda, signing a new executive order imposing a blanket 25% tariff on all imported steel and aluminium, scrapping previous exemptions for certain countries. Declaring, "No exceptions, no exemptions." the policy to take effect on 12 March.

On February 13, Trump signed another presidential memorandum ordering a comprehensive plan that would increase U.S. tariffs to be equal to the tariffs that countries impose on U.S. imports. U.S. Commerce Secretary Howard Lutnick said the investigation is expected to be completed by April 1st. After that, Trump will decide when to implement the new proposed tariffs.

Despite widespread international debate, LME 3M aluminium prices showed little volatility, fluctuating within 2,624 - 2,596.5$/t between 3 February and 13 February. The cautious market sentiment and trading suggest a wait-and-see approach—likely reflecting memories of Trump’s unpredictable tariff policies in 2018, when market paticipants struggled to anticipate his next move.

What happened to Trump 1.0?

In 2018, Trump invoked Section 232 of the Trade Expansion Act of 1962 to impose a 10% tariff on imported aluminium, citing national security concerns. The tariffs, which took effect on March 23, 2018, targeted unwrought aluminium, aluminium alloys, and certain aluminium products.

Initially, the U.S. granted temporary exemptions to Canada, Mexico, the European Union, Australia, Argentina, Brazil, and South Korea. However, on May 31, 2018, exemptions for Canada, Mexico, and the EU were revoked, making them subject to the 10% tariff. Australia, Argentina, and Brazil ultimately secured long-term exemptions, with Argentina and Brazil agreeing to export quotas in exchange for their exemption. Meanwhile, U.S. companies could apply for product-specific exclusions, though the approval process was slow and cumbersome.

The tariffs triggered swift global retaliation. Canada imposed countermeasures worth CAD 16.6 billion on U.S. products, while the EU introduced €2.8 billion in retaliatory tariffs targeting aluminium, steel, Harley-Davidson motorcycles, and Bourbon whiskey, also filing a complaint with the WTO. Mexico responded with tariffs of up to 25% on U.S. aluminium, pork, cheese, and apples. China, having already faced anti-dumping and countervailing duties on aluminium products since 2017, levied additional tariffs of 15%-25% on 128 U.S. products worth $3 billion, including aluminium items. Other countries, including Russia and India, filed complaints with the WTO or imposed their own countermeasures.

In May 2019, the U.S. lifted aluminium tariffs on Canada and Mexico to facilitate the passage of the United States-Mexico-Canada Agreement (USMCA). However, in August 2020, the Trump administration reimposed a 10% tariff on certain Canadian aluminium imports, prompting swift retaliation from Canada. By September 2020, the U.S. withdrew the tariffs once again. Upon taking office, the Biden administration suspended the tariffs imposed during Trump’s tenure, and as part of a negotiated agreement, the European Union also temporarily suspended its retaliatory tariffs on U.S. goods, with the suspension in place until March 2025.

While the tariffs initially boosted profits for U.S. aluminium producers, domestic primary aluminium output continued to decline. U.S. aluminium consumption remained heavily reliant on imports, and the tariffs fueled growth in the recycled aluminium sector. Downstream industries, such as automotive, construction, and packaging, faced higher material costs, eroding their global competitiveness. With Trump’s 2.0 tariffs now in place, uncertainty persists regarding their long-term impact.

Trump 2.0 Tariff return, escalating global trade tensions

Trump’s latest tariff announcement has reignited tensions across global markets.

In the short term, countries may try to avoid tariff shocks through diplomacy, but if the U.S. is intransigent, global trading partners may seek to diversify their markets and reduce their dependence on the U.S. in the long term, according to trade experts.

Wendy Cutler, vice president of the Asia Society Policy Institute (ASPI), warned that countries may find that Trump's tariff policies are changing so quickly that negotiations may not be a long-term solution and may eventually be forced to take retaliatory measures.

Canada, the largest supplier of primary aluminium to the U.S. (accounting for nearly 80% of imports), strongly condemned the new tariffs as "unjustified" and threatened countermeasures. Quebec, a key aluminium-producing region, suggested imposing an export tax on aluminium shipments to the U.S. as leverage in negotiations.

The European Union vowed to retaliate, considering reinstating its 2018 tariffs on U.S. goods, including bourbon and Harley-Davidson motorcycles. The EU has also warned that Trump’s policies could escalate into another trade war.

Japan formally requested an exemption, citing its deep integration into U.S. supply chains. However, as of now, the U.S. has yet to respond.

Australia has been lobbying aggressively for an exemption. Although Trump initially declared there would be "no exceptions," he later stated after a call with Prime Minister Anthony Albanese that Australia’s request would be "seriously considered." However, subsequent reports indicated that the U.S. accused Australia of failing to honor previous commitments to limit aluminium exports, casting doubt on whether an exemption would be granted.

The UK has taken a cautious approach, seeking negotiations to mitigate the tariff’s impact while simultaneously warning that the new duties could further weaken its domestic aluminium industry.

In the short term, many countries will push for exemptions, but long-term responses may include countermeasures and shifts in trade flows. The coming weeks will determine how global aluminium markets adjust to the new landscape.

What will happen in the US if Trump eventually imposes aluminium tariffs with no exceptions?

Aluminium prices surge, manufacturing costs rise

With U.S. aluminium consumption reliant on imports for approximately 57.2% of its demand in 2024, the anticipated price surge could significantly impact key industries such as automotive, construction, and packaging. Coca-Cola has already indicated that rising aluminium costs might lead to increased use of plastic bottles as a cost-control measure. Since February 10, the U.S. Midwest aluminium premium has surged to $882 per ton, marking a 43% increase from the $617 per ton recorded after the Canada-Mexico tariff announcement and a staggering 66.7% rise from late January’s $529 per ton, according to sources of SMM.

In addition, Fixed-Premium Contracts (FPCs) may be challenged, and that the U.S metals market may shift in the future from a long-term fixed-premium trading model to short-term (1-2 month) contracts or Floating-Premium Contracts (FPCs). This means that suppliers and buyers will need to adjust their purchasing plans more frequently to cope with the risks associated with price volatility.

Limited primary aluminium capacity, but rising secondary supply

Despite tariff protection, the U.S. primary aluminium industry remains constrained by high energy costs and environmental regulations. As of 2024, only four primary smelters remain operational, with an annual output of just 690,000 tons and a capacity utilization rate of roughly 52%. Century aluminium has secured a $500 million grant from the U.S. Department of Energy to construct a greenfield smelter, yet the project remains in search of a sustainable energy source. Historical data suggests that tariffs do little to revive domestic smelting—New Madrid’s short-lived restart following the 2018 tariffs ended with its closure in early 2024. With primary aluminium making up just 15.7% of U.S. supply in 2024, the country may increasingly turn to scrap recycling.

Recycled aluminium production is expected to reach 3.6 million tons in 2024, accounting for 84.3% of total domestic output. The U.S. is the world's largest consumer of aluminium beverage cans, using 106.7 billion in 2021, yet its recycling rate has dropped to 43%, down from a peak of 57% in 2014. Expanding deposit return schemes (DRS) could improve scrap recovery and mitigate the supply gap. In 2024, significant investments in aluminium recycling include a $40 million facility in Russellville, KY, focused on processing dross and scrap, and a $67.3 million low-waste recycling plant in Wabash, IN. Scrap net exports fell 32% year-over-year to 940,000 tons and are expected to decline further in the near future.

Furthermore, Steel Dynamics Inc. is investing $2.5 billion in a 650,000 tpa aluminium flat-rolled mill in Columbus, MS, targeting the beverage can, automotive, and industrial sectors. Construction is underway, with operations expected in Q1 2025. Novelis Inc. is also developing a $2.5 billion fully integrated aluminium rolling mill in Bay Minette, AL, with a 600,000 tpa capacity for the beverage can and automotive applications, set to launch in 2025. Those greenfield rolling mill projects will use as much scrap as possible. As a result, flat-rolled aluminium imports may drop along with the net export of scrap in the next few years.

Fig.1 Primary aluminium share declines from 2020 (Source: SMM, USGS)

Fig. 2 Net export of Aluminium scrap declines in 2024 (Source: USGS)

Market uncertainty grows, global supply chains realign

Trump’s unpredictable trade policies have left market players hesitant to make long-term commitments. In 2024, the U.S. imported 5.01 million tons of aluminium and semi-finished products, with 53% coming from Canada. Should U.S.-Canada trade relations deteriorate, Canada may redirect exports to Europe or Asia. Meanwhile, the EU and Japan may reconsider their trade ties with the U.S., prioritizing supply chain diversification. Some American manufacturers might also explore relocating production to countries with lower tariff risks.

Fig.3 Import of U.S. aluminium and semis in 2024, by source country (HS codes include “7601”, “7604”, “7606”, ‘7607’, ‘7608’, ‘7609’, source SMM)

In summary, the full implementation of aluminium tariffs will exacerbate the rise in aluminium prices, increase the cost of manufacturing and push enterprises to look for alternative materials in the U.S.. At the same time, primary aluminium production capacity is difficult to recover, and aluminium scrap recycling may become a new supply growth point. At the global level, aluminium market flows may change, and supply chain restructuring will become a long-term trend.

In the short term, the market is still on hold, as reflected in the volatility of the London Metal Exchange (LME) aluminium price - the market sentiment is cautious, and let the bullets fly a little longer.

Author: Xinyi Liu | Aluminium Analyst | London Office, Shanghai Metals Market

Email: cathyliu@smm.cn