You can’t increase exports if you are the highest cost manufacturer.
The Metals Lobby’s Big Steal
The Wall Street Journal discusses The Metals Lobby’s Big Steal
Multiple press reports say that an agreement to avert a 50% U.S. tariff on $20 billion in Canadian goods broke down last week in part because of objections by the U.S. steel and aluminum lobbies. The mooted deal would have reduced those tariffs on Canadian steel and aluminum to 25% from 50%.
Call it a case study in how a narrow special interest calls the tune for the rest of the American economy. The current U.S. tariffs on metals date to Mr. Trump’s first term, originally set at 25% for steel and 10% for aluminum, in the name of national security. But his first Administration exempted Canada and Mexico to mitigate the damage to downstream U.S. users in manufacturing and construction.
Soon after taking office for a second time, Mr. Trump removed these exemptions, later raising the tariffs to 50%. After U.S. manufacturers that use steel and aluminum complained that the taxes made them less globally competitive, he imposed a 25% tariff on so-called derivative imports that contain the metals. Who knew stainless steel pots were a national-security threat?
These sky-high border taxes have caused U.S. aluminum and steel prices to soar. The price premium for U.S. aluminum over the global benchmark has increased five-fold since Mr. Trump took office a second time. Americans are now paying roughly 75% more for aluminum than the rest of the world. Steel prices in the U.S. are also about 64% higher than in northern Europe. One reason these differential are larger than 50% is because the metal tariffs are stacked on top of other tariffs on China, which is the world’s largest producer of steel and aluminum.
By the way, President Trump admitted Monday that the U.S. needs aluminum from Canada—contrary to his social-media post the same day. “This country desperately needs aluminum,” Mr. Trump said during a telephone rally for a GOP candidate in Oklahoma. “We don’t have it. We get it all from Canada for the most part, and we need it badly.”
How Trump’s Protectionism on Aluminum Works in Two Pictures
On April 19, 2026, I explained How Trump’s Protectionism on Aluminum Works in Two Pictures
In just the last few years, primary aluminum smelters in Washington, Missouri, and Kentucky have each shut down, and production has declined. Now, only four smelters are in operation, just two at full capacity. And this contraction occurred despite tariff protection expressly intended to boost output.
Canada has long been America’s largest aluminum supplier, thanks to abundant hydroelectricity that gives its producers a decisive cost and environmental advantage. Canadian aluminum is also deeply integrated into US defense supply chains because the nation is a close ally that was officially made part of America’s Defense Industrial Base in 1993. With Canada specializing in primary smelting and the US focused on downstream fabrication and manufacturing, bilateral trade and investment flourished.
Comparative advantage was working exactly as advertised – until we blew it up.
Reflections on Comparative Advantage
The US cannot compete with Canada on either raw minerals or aluminum manufacturing.
But economic realities do not stop Trump. As a result of his inane tariffs, the US pays roughly 75 percent more for aluminum than the rest of the world. Production declined.
Moreover, the energy demands of aluminum are intense. The smelters will have to compete on electricity with all of the data centers now under construction.
It makes as much sense to compete with Canada on Aluminum as it does to compete with Thailand and Indonesia in natural rubber production.
Nonetheless, Lutnick wants all auto supply chains in the US.
Did Howard Lutnick Purposely Wreck the Trade Deal with Canada?
On August 24, I asked Did Howard Lutnick Purposely Wreck the Trade Deal with Canada?
Understanding the Setup
The US has two negotiators, Commerce Secretary Howard Lutnick, who oversees the so-called Section 232 sectoral tariffs, and US Trade Representative Jamieson Greer.
The consensus opinion was that a deal was close. Carney thought a deal was close. Trump announced a deal, arguably a huge red flag.
There was a last minute dispute over tariffs on light trucks. It’s possible this was a simple misunderstanding. Each side may have had a different understanding of autos.
The killer was two last minute demands by someone on the US side. The first pertained to Canada’s ability to make deals with other countries. The US wanted restrictions.
The second last minute demand by the US sought to curtail the use of French, one of Canada’s two official languages. This dispute pertains to digital services and US-based streaming services and levels of French-language content.
Canada’s ambassador to the US, Mark Wiseman, likened the negotiations to a handshake deal to buy a house — only for the prospective buyer to learn appliances weren’t included, the furnace had no warranty and neither the garage nor yard is on the same property
Point three in and of itself was a sensitive situation. Then out of the blue came demands four and five.
Point four alone was sufficient for Canada to walk away. No nation would agree to that.
Lutnick and Greer both had to understand that as well. So, what’s the point of making those last minute demands unless it was to purposely kill the deal?
Lutnick’s Goal Is Clear
Consider this snip from the Wall Street Journal.
If the tariffs are implemented, a 50% levy could drive automakers to close factories in Canada, particularly if the U.S. eliminates tariff rebate programs based on automakers’ use of U.S.-made parts. Auto parts regularly cross the U.S., Mexico and Canada borders multiple times before being put in a vehicle. Commerce Secretary Howard Lutnick, whose agency administers the tariffs, has said he wants to bring many of those supply chains to the U.S.
Four Incompatible Ideas
Create Fortress America
Reduce Inflation
Increase Exports
Increase Tariff Revenue
Tariffs increase costs. If you succeed on point one, you immediately fail on points 2 through four.
Related Post
August 25, 2026: Canada Retaliates and Trump Threatens to Rename Lake Ontario
Trump makes a threat he cannot even keep.
Trade wars do neither side any good. We have them because someone starts a trade war, Trump in this instance, and political necessity demand retaliation.
An overwhelming percentage of Canadians wants Carney to respond. So he did.
It is absurd to be in this spot, but here we are.
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