50%→25%! The US Uses Tariff Cuts as a "Bait" to Attract Aluminum Companies to Build Factories Domestically; Can the Dilemma of Import Dependence Be Solved?

According to Zhihui Finance APP, the Trump administration announced an incentive plan on Monday: companies that build, expand, or renovate aluminum smelters within the United States can receive tariff reduction benefits on imported aluminum. Under this plan, companies approved by the U.S. government and meeting new establishment requirements will see their import aluminum tariffs reduced from the current 50% to about 25%.

Previously, U.S. President Trump imposed a 50% tariff on imported aluminum in order to drive the manufacturing capacity of industries that widely use lightweight metals, such as automobiles and washing machines, back to the U.S. However, the effectiveness of this measure has been limited, and it faced lobbying from many countries to reduce the tariff rate.

More critically, the existing U.S. primary aluminum production capacity is far from sufficient to meet domestic demand and is highly dependent on imports—especially supplies from Canada and the Middle East to fill the consumption gap.

Currently, there are only four aluminum smelters operating in the U.S., down from 23 in 2000. About half of the aluminum consumed in the United States comes from Canada, where smelters rely on hydropower and other cheaper energy sources for production. The cost of electricity poses a huge constraint on domestic expansion—the last new smelter in the United States began production more than forty years ago.

Since the 50% punitive tariff was implemented in June last year, the U.S. Midwest aluminum premium (the additional fee for aluminum delivered to that region above the global benchmark price) has soared. Another round of supply shocks caused by the Iran war pushed the Midwest aluminum premium up by nearly 100%.

The U.S. Midwest aluminum premium directly reflects the material costs U.S. manufacturers bear when producing appliances, beverage cans, and automobiles—in reality, they have been paying the highest global raw material prices and have adopted a “just-in-time” procurement model, purchasing only enough to meet current production needs.

In terms of the global benchmark at the London Metal Exchange (LME), aluminum prices have also surged this year due to dual supply shocks. Before the White House announced this plan, the LME aluminum price settled at $3,140 per ton, a slight decrease of 0.3%.