Trump’s aluminum tariffs have Glencore’s prints all over them

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When President Donald Trump was elected in 2016, the U.S. primary aluminum industry was on its deathbed. Undercut by Canadian producers that relied on cheap and clean hydroelectricity to power modern smelters, and unable to compete with subsidized Chinese imports, the U.S. industry had shrunk to five plants operating below capacity.

Tariffs Mr. Trump imposed on Canadian raw aluminum imports in 2018 bought the U.S. industry some time, but not enough to fix its fundamentals. When the tariffs were lifted last year – as part of a good-faith gesture aimed at securing ratification of the United States-Mexico-Canada trade agreement – it was only a matter of time before U.S. aluminum producers began to clamour for their renewal.

Last week, Mr. Trump answered their pleas, proving that the most protectionist U.S. president in modern history never really intended to honour the spirit or the letter of the USMCA, which went into force barely a month ago.

Many observers saw the renewal of a 10-per-cent tariff on Canadian primary aluminum as an election-year move aimed at buttressing the political fortunes of Mr. Trump and other Republicans in states and districts that are home to aluminum smelters. Yet, neither the President nor his party likely need much help in holding onto solidly Republican states such as Kentucky, South Carolina or Missouri in November.

Mr. Trump remains all but certain to carry each of those states, as he did in 2016. Some polls have indicated a tightening in Senate races in Kentucky and South Carolina, where GOP incumbents Mitch McConnell and Lindsey Graham are up for re-election, respectively. But neither long-time senator looks to be in danger of losing.

Meanwhile, the Cook Political Report, which uses a detailed quantitative formula to “rate” congressional races, does not anticipate much, if any, movement in House of Representatives districts in the three Republican-dominated states.

What’s more, the overwhelming majority of U.S. manufacturers that transform primary aluminum into value-added products denounced renewed tariffs on Canadian imports, arguing the levies would only increase the cost of finished products, such as cars. U.S. automakers, which have opposed tariffs on aluminum, employ tens of thousands of workers in swing states where Mr. Trump is trailing, such as Michigan. By comparison, the entire U.S. raw aluminum industry employs only a few thousand workers.

Hence, a more likely explanation for Mr. Trump’s decision to reimpose tariffs on Canadian aluminum lies in the oversized influence of a single producer, Chicago-based Century Aluminum Co., and its largest shareholder, Glencore PLC. Swiss-based Glencore owns a fully diluted stake of 47 per cent in Century, which operates two smelters in Kentucky and another in South Carolina that have long teetered on the brink.

Glencore, which operates a sophisticated metals trading operation, also purchases the bulk of Century’s production, according to the company’s 10-K filing with the U.S. Securities and Exchange Commission. Mere speculation that Mr. Trump would reimpose tariffs on aluminum helped lift its price, which is set on the London Metals Exchange.

The U.S. primary aluminum industry is small by global standards. Century alone accounts for about two-thirds of the annual U.S. production capacity of about 1.1 million tonnes. Canadian capacity stands at more than three million tonnes.

The only other U.S. smelter currently in operation, in Missouri, was rescued from bankruptcy in 2014 by two former Glencore traders, Matt Lucke and Zach Mayer. The smelter had been dormant before the first round of tariffs was imposed in 2018. The pandemic depressed global aluminum prices this year, threatening the plant’s survival.

Mr. Trump said a “surge” of Canadian aluminum imports had threatened the U.S. industry’s survival. But imports have remained below historical levels as the pandemic saps demand for value-added aluminum parts and products.

Canadian shipments of basic aluminum ingots have increased this year, but that was mainly because a smelter in Bécancour, Que., reopened in late 2019 after an 18-month labour dispute. But overall exports remain in line with 2017 levels.

British-based Rio Tinto and U.S.-based Alcoa have invested billions of dollars in recent years to modernize their Quebec smelters, which alone employ about 7,500 workers. Rio Tinto, which purchased Montreal-based Alcan for US$38-billion in 2007, also invested US$2.7-billion to modernize its smelter in Kitimat, B.C., starting in 2011.

Unlike most of their U.S. counterparts, Canadian aluminum producers use emissions-free hydro power. Three-quarters of electricity in Kentucky, where the bulk of Century’s production is located, comes from dirtier coal-fired power plants.

Not that Mr. Trump cares about that, of course. But neither is he that worried about carrying Kentucky, South Carolina or Missouri in November. His aluminum tariffs have less to do with his re-election strategy than meets the eye.

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