A report from Bloomberg Business has stated that the United States is considering reimposing a 10% tariff on aluminum imports from Canada.
The reasoning for this imposition is that US Trade Representative Robert Lighthizer, expressed concern that American aluminum producers have been struggling as sales and prices have both dropped. He believes this is due to the pandemic, as well as an increase in aluminum imports from both Canada and Mexico.
The US has asked Canada to slow their aluminum exports, however, Canada does not believe these exports harm the US economy. In fact, statistics from the past few years would suggest that Canadian aluminum exports into the US does not hinder the economy, but actually strengthens it.
To be blunt, the United States economy depends on aluminum. Aluminum is used very commonly in construction as well as manufacturing of durable and non-durable products which are all staples in the US economy.
In 2019, the construction industry brought $886.6 billion to the GDP of the United States which accounted for 4.1% of total GDP for the country. Aluminum is used in external facades, roofs and walls, windows and doors, staircases, railings, shelves, and other several applications due to its intrinsic properties of lightness and corrosion resistance.
Durable goods are defined as products that do not quickly wear out, or more specifically, yield utility over time rather than being completely consumed in one use. This includes automotive, aerospace and household appliances, all which are vast consumers of aluminum. Manufacturing of durable goods accounted for $1.342 trillion, which is 6.3% of the US’s total GDP.
Aluminum is not used as much in manufacturing the product of non-durable goods as durable goods, but is still very prominent as it is used in the packaging of most food, medication and beverages. A Non-durable good is defined as a good which is to be consumed in one use or over a short period of time. The manufacturing of non-durable goods was responsible for $1.017 trillion and 4.7% of the US GDP.
Whether it is the main product or not, these industries rely on aluminum and make up 15.1% of the American GDP. Plus, these are only a few examples. Aluminum can be used in many other industries as well.
In order to provide the amount of Aluminum needed to support their economy, naturally, the US is the largest importer of aluminum worldwide, with an aluminum import value totaling $22.3 billion in 2019. Of that number, Canada provides the United States with $7 billion worth, which is 31.6%.
The implication is not that the tariffs would destroy the economy, but there is a huge portion of US GDP that relies on the aluminum imports from Canada. Any imposed tariff would not only hurt the Canadian aluminum industry, but would have a strong impact on the American economy, with Aluminum prices needing to be raised to counter the tariff.
Granted, this move would accomplish the goal of helping American aluminum producers, but in 2014, American aluminum companies only produced $3.97 billion worth of aluminum. Compare that to the $3.245 trillion in American GDP that would be at risk from disrupting the various supply chains relying on aluminum, one would think that there would be a mutual understanding of the benefit of free flowing trade.
Canada’s biggest trade partner is the US as is Canada the US’s second biggest trade partner (next to only China, whom the US is currently in the middle of a trade war with). It is expected that if the US places tariffs on aluminum, Canada will fire back with tariffs of its own on US goods. With USMCA now in effect, a trade war could not only massively disrupt both economies overall, but will defeat the purpose of a free-trade agreement entirely.