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The Trump administration has significantly raised tariffs on aluminum imports this year to 25% to throw a lifeline to the domestic aluminum industry.

However, all that higher tariffs have accomplished so far is increased costs for American consumers, while the government’s primary goal of reviving local production remains in shambles.

According to industry experts, there’s one big reason why tariffs aren’t helping on-shore aluminum production – and that’s discouragingly high electricity prices in the United States.  

Why do electricity prices matter for aluminum producers?
 

A lack of competitively priced electricity in the US is a huge letdown for aluminum producers, as smelting is an energy-intensive process.

Higher energy costs have plagued the local industry for years, argued Ami Shivkar, an analyst with Wood Mackenzie, in a recent note to clients.  

Aluminum smelters get to benefit from “long-term energy contracts or captive power generation facilities” in Canada, Norway, and the Middle East.

However, the US is “at a disadvantage” in this space as it relies rather heavily on short-term power contracts only, he added.

According to the Wood Mackenzie analyst, energy costs for Canadian smelters stand at $290 per tonne versus a significantly higher $550 per tonne for their US counterparts.

Note that Canada exports more aluminum to the United States than any other country does in 2025.

Electricity demand from the tech sector is growing fast
 

Trump tariffs are failing to revive the domestic aluminum sector as a significant chunk of the US electricity capacity is now catering to the fast-growing demands of the tech industry.

Ever since the AI boom started in late 2022, these non-industrial entities have made it even more challenging for aluminum producers to access competitively priced electricity for the long term, said Trond Olag Christophersen, the chief of finance at Norway-based Hydro.

“The tech sector has a much higher ability to pay than the aluminum industry,” he told CNBC in a recent interview, adding in order for us to build a smelter in the United States, “we’d need cheap power. We don’t see the possibility in the current market to get that.”

Trump tariffs are resulting in a reshuffling of trade flows
 

While raised tariffs under Trump 2.0 are failing to boost domestic production, they have been and will continue to reshuffle the trade flows, argued Hydro’s Christophersen.

Since higher prices are making it less attractive to export aluminum to the US, producers are now exploring other destinations to export their metal.

For example, in recent weeks, Europe replaced the United States as the most attractive region to export aluminum for Canadian producers, he added.   

Note that the iShares US Basic Materials ETF (IYM), which covers aluminum through US stocks with a quarterly dividend, is currently trading at about the same level at which it started the year 2025.   

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