A recent Bloomberg story we featured last week put a face on the specter of trade war over aluminum and steel, and retraced the history of this symbiotic U.S.- Canadian trade relationship and what our very own Dan McGroarty has called the “world’s most integrated defense industrial base.”
Digging a little deeper, a new Wall Street Journal piece takes us further into a “tightly woven production chain” which “illustrates the U.S. dependence on aluminum from Canada” and outlines the ramifications of current trade tensions between both countries for manufacturers and consumers.
The use of hydroelectric power in Quebec, Canada, allows for the cost-efficient operation of energy-intensive aluminum smelters, which in recent decades has led to Canada becoming the key producer of the metal for the United States.
Writes Kim Mackrael:
“The U.S. produces just 13% of the 5.6 million metric tons of raw aluminum it uses each year.
U.S. aluminum smelters are among the costliest and oldest in the world — above $2,000 per metric ton and 47 years on average, according to market consultant Harbor Aluminum in Texas. Canada’s smelters, aged an average 26 years, make the metal for about $1,500 a ton.”
Citing Eric Krepps, who runs runs the North American automotive business at Constellium NV, a Dutch aluminum company, who argues that there is not enough domestic aluminum production in the U.S., and that “[w]e could not source everything out of the U.S. even if we wanted to,” Mackrael reports that:
“Instead, the 10% tariffs are already adding costs right down the supply chain — directly through the duty paid at the border and indirectly though higher aluminum prices, delays and added bureaucracy, manufacturers say. Tariffs have contributed to a doubling in the premium paid for North American aluminum since January.
Analysts and some car companies say the higher aluminum prices will likely be passed on to American car-buyers rather than absorbed entirely by companies.”
Read more here – and to read more about the security implications of the escalating U.S.-Canada trade tensions over aluminum and steel tariffs, read Dan McGroarty’s recent piece for Investor’s Business Daily, entitled “The U.S.-Canada Trade War’s Collateral Damage: The U.S. Defense Industrial Base.”