Gateway Metals

In a new piece for The Hill, ARPN’s Dan McGroarty zeroes in on the inter-relationship of trade and resource policy, which has been an increasingly recurring theme over the past few months.

McGroarty argues that the removal of U.S. tariffs on steel and aluminum coming from Mexico and Canada, which have been a “dead weight on the ratification of the USMCA trade deal meant to replace NAFTA,” could “strengthen the president’s hand in the China trade talks” and ultimately “super-charge a North American resource renaissance.” 

He writes:

“A new deal that lifted the tariffs would (…) clear the way for the U.S., Canada, and Mexico to work together to encourage the development of critical minerals — that rapidly-changing group of metals and minerals essential to advanced technology, including everything from laptops and LEDs, wind and solar power, EV batteries and energy storage, to smart phones and smart bombs.

With the U.S. dependent on China as its primary supplier of 22 of the 35 critical minerals the Trump administration has deemed ‘essential to the national economy and national security,’ new sources of North American supply could (…) deprive China of the leverage it has to limit or even cut off U.S. critical mineral supplies.”

A joint focus on critical minerals fueled by the U.S.’s and Canada’s mineral riches and  Mexico’s long history of mining copper and gold that brings with it great potential of co-product  access could “could energize new methods of mining, refining, reclamation and recycling that could bring new supply online to meet surging metals demand.”

Ultimately, lifting the above-referenced tariffs could have benefits that stretch beyond the three countries.

Concludes McGroarty:

“So, while the headlines are dominated by U.S.-China trade war, watch for news on the North American trade front. If the president acts now to lift U.S. tariffs on steel and aluminum, opening the path to the passage of the USMCA — linking three nations with a combined GDP of $25 trillion –— trade friction will give way to a new era of trade expansion and economic growth. Trade peace in North America may be just the signal the president wants to send as trade war looms with China.”

In an interview with Fox and Friends, U.S. Senator Chuck Grassley (R, Iowa) discusses the path to what he terms a major trade victory for the U.S.  In order for this to happen, he believes removing the Sec. 232 tariffs from the USMCA, the new and yet-to-be-ratified U.S.-Mexico-Canada trade deal to replace NAFTA struck in November 2018, would be critical.

Followers of ARPN will know that in recent months, we have been keeping tabs on this issue, because it revolves around metal that sits at the intersection of trade and resource policy — Aluminum – one of the five Gateway Metals we have featured on our blog as part of our “Through the Gateway” campaign.

Watch the clip here:

Why does it matter?

Included in the 2018 list of 35 minerals deemed critical to the United States national security and economy, aluminum is the No. 1 material by annual DoD usage, and “a shortage of aluminum metal was cited in a nonclassified defense study as having ‘already caused some kind of significant weapon system production delay for DoD.’”

While the U.S. is home to significant deposits of bauxite, from which aluminum is sourced, we import a significant percentage of the aluminum consumed domestically.

As we previously pointed out, “[u]nlike with other metals and minerals, however, this represents a marked decrease in geopolitical risk, as most of our aluminum imports are sourced from one of our closest trading partners, Canada, which accounted for 56% of total aluminum imports from 2013-2016.

While viewed in isolation and from the upstream end of the supply chain at the minesite, the U.S. is increasingly import-dependent for the aluminum it needs, but viewed in the context of an integrated North American supply chain between the United States and Canada, our neighbor to the North is helping the U.S. close a significant domestic production shortfall.”

Thus, many were startled by the Administration’s decision earlier last year to impose trade tariffs on Canadian-made aluminum and steel under Section 232 of the 1962 Trade Expansion Act.

The USMCA  had opened a window to drop these tariffs on steel and aluminum imports from Canada and Mexico, which stand in the way of a fully integrated North American defense supply chain and, particularly with regards to Canada, “ignore nearly 80 years of deep defense cooperation with our northern neighbor.”

However, against all hopes, the tariffs have remained intact and all attempts to convince the Administration to strip the provisions have failed to date – which is why Sen. Grassley’s effort to help strip them from the agreement are all the more important.

As ARPN’s Dan McGroarty pointed out in his piece for The Hill:

“Particularly in the case of Canada, the U.S. tariffs ignore nearly 80 years of deep defense cooperation with our northern neighbor: Aluminum produced in Canadian smelters was central to the Allied war effort throughout World War II, during which the massive plant at Saguenay, Quebec supplied more than 40 percent of the Allies’ overall aluminum production. Today, Saguenay aluminum is on the U.S. tariff list.

With agreement on USMCA, it’s time to reaffirm the importance of an integrated U.S.-Canadian Defense Industrial Base. As the Government of Canada’s official comments on the 232 inquiry noted, ‘open aluminum trade with Canada benefits the U.S. economy and its national security.’ With aluminum on the U.S. Critical Minerals List, with the U.S. producing only 39 percent of the aluminum it uses each year and Russia and China among our leading suppliers, it makes no sense to slap a 10 percent aluminum tariff on Canada.”