“Commerce found that the quantities and circumstances of aluminum imports threaten to impair the national security,” the U.S. Secretary of Commerce said on Feb. 16.
Commerce is also offering President Trump three recommendations:
• A tariff of at least 7.7% on all aluminum exports from all countries, or
• A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
• A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.
Although it is no surprise that Commerce made such recommendations, it is still hard to understand.
Apparently, the tariff/quota is supposed to target China. But the fact is that around 54% of U.S. primary aluminum imports come from Canada, 19% from the Middle East, 16% from Russia, and 6% from Latin America, according to historical data. China does not export any primary aluminum to the U.S. because of the punitive tariffs of 15% on primary aluminum exports.
According to Trump’s previous comments, Canada may be exempted from any tariffs/quotas, meaning that only less than half of the imports would be affected. Russia and Middle-East countries such as U.A.E. might end up being unintended victims.
The biggest victims might be the U.S. downstream companies and consumers who would ultimately bear all the costs. A few upstream companies such as Alcoa and Century Aluminum might benefit from the price hikes resulted from supply shortages of primary aluminum. The biggest winner, however, would be the Trump administration who relies heavily on working class votes and is seeking reelection, despite that the tariff/quota would probably end up hurting the working class interests.
The tariff/quota might lead the old and outdated capacity in the U.S. to be restarted, but it might also counter-productively result in more imports, spurred by elevated prices. It might also provoke retaliation from aluminum exporting countries.