Trump Incentive: Aluminum Makers Building U.S. Plants to Get Half Tariff

The Trump administration announced on Monday (20th) an incentive for companies that build, expand, or renovate aluminum smelters in the United States: upon approval by the U.S. government, import tariffs on aluminum materials will be reduced from the current 50% to about 25%.

Previously, President Trump raised aluminum import tariffs to 50%, aiming to boost domestic aluminum production capacity. However, the policy has had limited success, only marginally increasing new investments, while many countries continue lobbying the U.S. to lower tariffs.

More importantly, the U.S. itself lacks sufficient primary aluminum production capacity to meet demand. Aluminum is widely used in various products, including automobiles and washing machines.

The U.S. remains highly dependent on imported primary aluminum, primarily from Canada and the Middle East, to meet domestic consumption needs. Currently, only four aluminum smelters are operational in the U.S., far fewer than the 23 in operation in 2000.

About half of U.S. aluminum consumption comes from Canada. Canadian smelters mostly utilize low-cost energy sources such as hydropower, while aluminum smelting is a highly energy-intensive industry, making electricity costs a major obstacle to expanding production capacity in the U.S. In fact, the last new aluminum smelter built in the U.S. was over 40 years ago.

High tariffs drive up U.S. aluminum prices

Since the 50% aluminum tariff took effect last June, the U.S. Midwest Premium has surged significantly. The Midwest Premium refers to the additional price paid for aluminum delivered to the U.S. Midwest compared to the global benchmark price.

Moreover, a new supply shock triggered by the Iran war has caused the U.S. Midwest Premium to spike again, increasing by nearly 100%.

The U.S. Midwest Premium is considered a key indicator of raw material costs for U.S. manufacturers, with appliance, beverage can, and automobile manufacturers all bearing this cost. This has led U.S. manufacturers to effectively pay the highest aluminum raw material prices globally, prompting many to adopt a 'just-in-time' procurement model, purchasing only enough aluminum to meet short-term production needs.

On the other hand, the London Metal Exchange (LME) aluminum price, which serves as the global benchmark, has also risen sharply this year due to the two aforementioned supply shocks. Just before the White House announced the new measures, the LME three-month aluminum futures closed down 0.3% at $3,140 per metric ton.