Trump’s Aluminum Tariffs Seriously Backfire Already

By Mish Shedlock of MishTalk

Sunday, September 7, 2025 8:11 AM EDT

Alcoa Tariff Damage in Profile

The Wall Street Journal notes Trump’s Aluminum Tariffs Hurt Alcoa.

You’d think one company happy with President Trump’s aluminum tariffs would be Alcoa, the American aluminum producer. Well, think again, and the reason is a case study in the perverse effects of trade protectionism.

About 85% of primary aluminum in the U.S. is imported, mostly from Canada. Alcoa runs two of the four operating U.S. smelters, but three-quarters of its North American primary aluminum production is in Canada. About 70% of that supplies U.S. customers. Until February its Canadian aluminum imports were exempt from Mr. Trump’s Section 232 tariffs.

Now Alcoa’s imports must pay a 50% tariff. CEO Bill Oplinger tells us that Alcoa can pass along some of its tariff costs—an estimated $215 million per quarter—to U.S. customers with which it has long-term contracts. Contracted prices adjust with the Midwest premium charged for aluminum delivered into the U.S., which have roughly doubled since February.

Why doesn’t Alcoa expand production in the U.S. to avoid the tariff cost, as Trump trade adviser Peter Navarro urges? It takes about two years to secure permits for a new smelter and five to seven years to build one. A new smelter would cost $5 billion, which is about 80 times Alcoa’s profit last year.

Mr. Oplinger says Alcoa makes decisions on 20- to 40-year financial time-lines. Mr. Trump may or may not keep his aluminum tariffs, and he may change the rates on a whim or exempt countries as part of the broader deals he’s trying to negotiate. This is why Americans haven’t heard plans from other aluminum producers to restart smelters.

Merely restarting a production line at Alcoa’s Indiana smelter would cost $100 million and take a year or more, yet it would add only 50,000 metric tons of capacity. That’s 1.2% of U.S. imports. Even if all American smelters ran at full capacity, the U.S. would still need to import about 3.4 million metric tons of aluminum—the equivalent of five large new smelters.

The U.S. would also need much more and cheaper electricity. Alcoa says producers would need firm contractual energy-price commitments of about $30 per megawatt hour for at least 15 years to be globally competitive. Manufacturers in the U.S. typically pay from $60 to $100 per megawatt hour.

Alcoa’s Canadian smelters are economic because they run on cheap hydropower, but Mr. Oplinger says the tariffs may cause the company to stop expansion plans even in Quebec. Producing all of the aluminum that the U.S. now imports would consume about as much power as six large nuclear reactors produce in a year.

Why Tariffs Won’t Fix Manufacturing

No one knows what the hell trump will do, what exceptions he will make, or when.
The lead times for steel, aluminum, and copper mill expansion are too large.
Electricity costs are rising
Intermediate production demand is getting killed.

Intermediate Production Use

For every direct job in steel, aluminum, or copper production, there are hundreds of users of those metals.

The percentage of U.S. imports that are intermediate goods varies depending on the source and year, but a recent analysis from 2025 found that 51% of goods imported into the United States are intermediate goods, according to Information Technology and Innovation Foundation (ITIF).

Small manufacturers will be clobbered by these tariffs. And production will not return to the US for years if ever.

How Many Jobs Will Trump Create?

Assuming the US produces all the copper it needs, the answer is hugely negative.

Perhaps mining industry employment doubles, if and when US mines get into production.

But that is dwarfed by users of copper, all paying a higher price.

This was the subject of debate on X today.

Saving this post to check back on in a year because I disagree.
— Liberty Newspost (@LibertyNews) September 6, 2025

Fine Liberty - But a Recession will kill all jobs.
Whatever jobs manufacturing creates long term will be at the expense of vastly more job losses elsewhere.

Short term - Within a year or two, I expect a collapse in small business manufacturing
— Mike "Mish" Shedlock (@MishGEA) September 6, 2025

Path very sustainable. Do you doubt increasing productivity and less need for many jobs?

I suppose Trump could make iPhone production great again by having hundreds of thousands of people put in tiny screws.

But what would an iPhone cost?
That is the issue you don't see.
— Mike "Mish" Shedlock (@MishGEA) September 6, 2025

It will take years, if ever, for Trump to make steel, aluminum, and copper production in the US great again.

The same applies to auto parts imports.

Meanwhile the costs have gone up with Ford, GM, John Deere, and even Alcoa complaining.

I suppose Trump could make iPhone production great again by having hundreds of thousands of people put in tiny screws. But what would an iPhone cost?

We are in the very beginning of a Trump-enhanced slowdown. A recession is coming.

There will be a decrease in jobs across the board. Small businesses who stockpiled de minimus imports will survive for a while. But watch for bankruptcies when those inventories run out.