Canada exports almost $2 billion of aluminum products annually. Of this, 87% traditionally goes to America according to National Resources Canada. Our prices are lower than theirs, because we have modern, cost effective smelters. Whereas America’s counterparts are “typically older, smaller, and less cost-efficient” according CBC Canada. A similar comparison applies to steel mills
Nonetheless, President Trump in his infinite wisdom (that leaves the rest of us puzzled) decided to slap a 10% tariff on Canadian aluminium (and 25% on steel). This bypassed both Congress and business logic, because he relied on a little-known clause in the 1962 Trade Expansion Act, which under certain circumstances:
“Allows the president to impose tariffs based on the recommendation from the U.S. Secretary of Commerce if an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security.”
How Likely Is This Strategy to Work for America?
No new jobs are not likely for a while, as America has little immediate capacity to increase production. New aluminium smelters are expensive and take years to build.. It remains to be seen whether investors will have a stomach for this, given the next incumbent – and indeed the next Congress – could seek to reverse the tariffs, or reduce them.
However, the US Government will benefit from increased tax income, although this might be offset by lower American exports to affected countries, especially products with significant steel / aluminium content. CBC Canada thinks there is a fair chance American companies will take the opportunity to increase their prices in line with the tariff too.
Why Are Aluminium Prices Rising In Canada?
One might think the Canadian price would go down, given American demand will fall at least for a while. However, the opposite seems to be happening. We buy aluminum coils and pipe for gutters on a regular basis. The costs have gone up around 30% for most aluminium components. We also recycle the old gutters, and the scrapyard pays us around 30% more in recent months.
We think the higher scrap prices are due to increased demand. As Jorge Vasquez – who served as adviser to both the U.S. International Trade Commission and the Canadian Trade Tribunal – says, “rising prices always prompt a great effort to recover scrap” and increasing demand increases prices.
That said, why are we paying 30% more for new aluminium coils and pipes for gutters on a regular basis? Companies in the supply chain keep their cards close to their chest and we can only surmise. Perhaps someone thinks Canadians should pay American prices locally. But then why three times more than the tariff?
We’ll do whatever we can at Valiant Exteriors to manage the situation of these rising costs. We will continue to ensure every piece of aluminium scrap goes for recycling, and we will keep scouring the market for better raw material prices. However, whatever we do we will never cut quality.