Written by: Catherine Loubier Delegate General of Quebec in New York, Jean Simard President and CEO – Aluminium Association of Canada, and Scotty Greenwood CEO – Canadian American Business Council
The U.S. administration is currently evaluating the possibility of restoring a 10 percent tariff on Canadian aluminum exports. Coming on the heels of the USMCA, the new North American trade treaty that incentivizes continental sourcing of metals, this potential protectionist measure raises a dark cloud over the largest and most successful bilateral relationship in the world.
Canadian aluminum has played a key role in North America’s Arsenal of Democracy since at least World War II and is today a strategic component in many of our highly integrated value chains.
The Canadian province of Quebec has been central to this partnership. With energy accounting for nearly 40 percent of aluminum production cost, Quebec became home to some of the world’s largest aluminum smelters, thanks to an abundance of affordable hydroelectricity.
Canadian aluminum is everywhere in America, including in the all-aluminum Ford F150. Our exports have contributed greatly to the prosperity and security of the U.S. and ensures some 700,000 American jobs, including in many regions where manufacturing is strong such as Pennsylvania, New York state, Kentucky and Ohio.
The United States and Canada have also integrated their defense industrial bases and U.S. companies like Boeing and Lockheed-Martin are among the prime beneficiaries of a secure, reliable and affordable aluminum supply from Canada.
Because U.S. aluminum output – by any stretch of the imagination – cannot meet domestic demand, any action targeting Canadian aluminum exports would benefit other countries, including China, which would gain a greater market share into the U.S. on aluminum at the expense of Canadian exports and our common national security.
All the while not addressing the true root causes of global excess capacity, which lie outside of North America. That is not the way to go.
Based on allegations that a surge in imports of Canadian aluminum has undermined the competitiveness of U.S. domestic aluminum production, the push for tariffs is unwarranted.
Aluminum prices, already low, have fallen due to a decrease of demand caused by the COVID-19 pandemic, not because of imports from Canada. Since March 2018, the total price of aluminium has fallen significantly.
The global crisis has affected the aluminum industry, like almost every other manufacturing sector, and caused a collapse in demand and a steep decline in the world price. That is true on both sides of the U.S.-Canada border.
We have seen what happened in May 2018. Section 232 tariffs on Canadian aluminum proved to be counter-productive – raising prices for consumers and manufacturers and ultimately costing jobs in many key sectors of the U.S. economy.
They were repealed by May 2019. Another round of tariffs in the current economic climate would be even more devastating both in terms of economic impacts and job losses and would create unnecessary obstacles to a much-hoped-for quick recovery.
Levies would again artificially increase the price of aluminum in North America, and at the same time raise costs for U.S. consumers and reduce the competitiveness of aluminum-consuming industries.
These concerns explain why key U.S. business leaders such as the U.S. Chamber of Commerce and the Aluminum Association, which represents more than 97 percent of U.S. aluminum jobs, strongly oppose the reimposition of tariffs.
We also share American concerns about global overcapacity, mainly stemming from Chinese overproduction, as well as the issue of transhipment.
Canada has been proactive in that regard and has already put in place a robust system to monitor aluminum imports and thus prevent the transhipment of aluminium and, consequently, its diversion to the United States. The imposition of tariffs will in no way resolve this fundamental problem.
Well-integrated value chains have enabled the North American economy to be among the most innovative and competitive regions of the world.
Maintaining this partnership is of crucial importance to Canada and to Quebec, which provides up to 90 percent of Canadian aluminum exports to the U.S. Tariffs and protectionist measures are a “lose-lose” proposition.
The onset of the USMCA should be the time to strengthen our trade relationship, not to undermine it.
In an address before the Canadian Parliament in Ottawa in 1947, at the dawn of the Cold War, President Harry Truman stated: “The record proves that in peaceful commerce the combined efforts of our countries can produce outstanding results. Our trade with each other is far greater than that of any other two nations on earth.”
Let’s keep it that way.
Photo by Lenny Kuhne on Unsplash