Starting this week, all unwrought aluminum produced at the BC Works smelter in Kitimat and exported to the U.S.—which is to say 80 per cent—will face tariffs of between 25 per cent and 50 per cent.
It’s a serious concern for a major industry in B.C., which may be forced to find new customers outside of the United States.
“In economic terms, clearly there will be some short-term impact,” Jerome Pécresse, chief executive of aluminum for Rio Tinto, told BIV. “But the primary impact will be on our customers in the form of inflation.
“In the medium term, it could be that we have to redirect our trade flows by selling more aluminum into markets like Europe and Asia, and less aluminum to our traditional markets in the U.S.”
At press time, tariffs of 25 per cent are to go into effect March 12 on all steel and aluminum imports from Canada, Mexico, Argentina, Australia, European Union countries and the U.K. under the U.S. Trade Expansion Act.
Broader tariffs on most other Canadian imports, implemented last week, fall under the International Emergency Economic Powers Act (IEEPA).
Measures under IEEPA are ostensibly aimed at border security issues, whereas the stated intention of Trade Expansion Act tariffs is to protect and revitalize the American steel and aluminum industries, which have suffered major declines since the dawn of the Ronald Reagan free-trade era.
It’s an era U.S. President Donald Trump means to bring to an abrupt end, to the detriment of Canadian industry.
“Due to two distinct legal pathways, Canadian steel and aluminum imports could be subject to a combined 50 per cent tariff,” PwC said in a recent analysis.
Tariffs on aluminum imports were applied in 2018 under the previous Trump administration. Canada was among the countries that eventually received exemptions that are to be revoked this week.
Tariffs on Chinese steel and aluminum imports never received exemptions from the previous Trump administration, and were, in fact, increased by the Joe Biden administration to 25 per cent from 7.5 per cent.
But tariffs implemented in 2018 did not accomplish their goal of boosting American aluminum productivity.
According to the Congressional Research Service (CRS), the U.S. was the world’s largest primary aluminum producer in 2000, but by 2021, it had fallen to ninth place globally and accounted for just two per cent of worldwide production. The CRS also noted that electricity accounts for 40 per cent of the cost of producing aluminum, and that the U.S. is not competitive in that regard.
“Consequently, a major reason for the decline in U.S. primary aluminum production is that the United States is a relatively high-cost producer,” the CRS noted in a 2021 report. “The world’s leading producers of primary aluminum are generally countries with comparatively low energy costs, including Canada, Russia and the United Arab Emirates.”
“You need to have cheap hydro power,” Pécresse said. “Canada has cheap hydro power.”
Rio Tinto operates five aluminum smelters in Canada: Four in Quebec and one in B.C.
Its BC Works smelter in Kitimat employs more than 1,000 workers. When contractors are added, it employs about 2,500 people directly and indirectly, Pécresse said. Currently, 80 per cent of the aluminum produced in B.C. goes to the U.S.
Pécresse gave assurances that the company has no plans to reduce either production or investments in its BC Works operation.
“We continue to invest in the site,” he said.
Aluminum prices have already ticked up in anticipation of tariffs, and Pécresse says he thinks American buyers are worried about major cost escalations.
“I think customers are worried in the short-term about inflation, and in the medium-term that trade flows could change, and they would have to find other sources of aluminum,” Pécresse said.
Tariffs are part of Trump’s vision to reindustrialize America, which has lost significant industrial and manufacturing capacity since the 1980s, which saw trade liberalization policies under Reagan.
U.S. aluminum production has fallen from 3.8 million tonnes in 1999 to about 700,000 tonnes today. Of the 15 aluminum smelters that once operated in the U.S., only a handful are still in operation, and some of those are running under capacity.
Alcoa Corp. is among the companies still operating smelters in the U.S., which is currently “short” four million metric tonnes of aluminum production. Of that, Canada makes up about 2.8 million metric tonnes, Alcoa CEO Bill Oplinger said at a Feb. 25 BMO Global Metals, Mining and Critical Minerals Conference.
Far from helping, though, he said tariffs will kill jobs in the U.S. aluminum sector.
“We have a view that 25-per-cent tariffs will destroy about 20,000 direct U.S. aluminum industry jobs and could result in 80,000 indirect jobs being eliminated,” he said. “We view it’s bad for the U.S.”
Trump’s beggar-thy-neighbour approach to reindustrialization may work for some industries. But investing in a smelter or even restarting an idled one is no simple task. Nine years ago, Rio Tinto completed a modernization of its Kitimat smelter—built in 1956—to the tune of $6 billion.
“You need a huge amount of money,” Pécresse said. “You need a huge amount of power, which today in the U.S. is deeply needed for other needs, like data centres, and it takes five to 10 years.”
While Canada is not the only target of Trump’s aluminum tariffs, it is more exposed than most other countries simply because it is the United States’ biggest supplier. Canadian producers may therefore need to start looking for new customers elsewhere.
“Primary producers of Canadian steel and aluminum should evaluate their sales channels to assess alternative markets where product sales would not face tariffs,” PwC recommends.
That is something Rio Tinto will be considering, Pécresse said.
“Trade flows can reorient,” he said. “At a certain point—particularly, I would say, for Kitimat—you could reorient sales from the U.S. into Europe or into Asia. We are prepared to do it, if we need to.”
