DJ - Why U.S. Metals Tariffs Are Unlikely to Change Trade Patterns

By Kim Mackrael

By Kim Mackrael | Photographs by Fabrizio Costantini for the Wall Street Journal 

Lakeshore, ONTARIO -- Across the border from the U.S. auto capital of Detroit, a Canadian company here buys aluminum made at smelters in Quebec using bauxite from Africa or Brazil that Ford Motor Co. puts in America's best-selling pickup, the F-150.

The tightly woven production chain illustrates the U.S. dependence on aluminum from Canada that many say is unlikely to change despite recent metals tariffs the Trump administration hopes will boost the American metals sector.

"The reality is there's not enough aluminum made here," said Eric Krepps, who runs the North American automotive business at Constellium NV, a Dutch aluminum company. "We could not source everything out of the U.S. even if we wanted to."

Instead, the 10% tariffs are already adding costs right down the supply chain -- directly through the duty paid at the border and indirectly though higher aluminum prices, delays and added bureaucracy, manufacturers say. Tariffs have contributed to a doubling in the premium paid for North American aluminum since January.

Analysts and some car companies say the higher aluminum prices will likely be passed on to American car-buyers rather than absorbed entirely by companies.

Canadian-made aluminum is used for hundreds of different U.S. auto parts. The U.S. tariff on the metal, first imposed alongside steel tariffs in March, was extended to include Canada, the European Union and Mexico at the beginning of June.

On Monday, the office of the U.S. Trade Representative launched disputes at the World Trade Organization against Canada and others, challenging retaliatory tariffs they recently imposed.

The Trump administration used national security grounds to justify the metals tariffs. Canadian officials, citing historically close cooperation on security and defense, have called that "insulting" and "absurd." The administration is again citing national security as it considers imposing additional tariffs on vehicle and auto-parts imports. That would further complicate supply chains for U.S. auto makers.

In recent decades, Canada has become the key producer of aluminum for the U.S. because hydroelectric power in Quebec makes it relatively cheap to run energy-intensive aluminum smelters.

The U.S. produces just 13% of the 5.6 million metric tons of raw aluminum it uses each year.

U.S. aluminum smelters are among the costliest and oldest in the world -- above $2,000 per metric ton and 47 years on average, according to market consultant Harbor Aluminum in Texas. Canada's smelters, aged an average 26 years, make the metal for about $1,500 a ton.

One U.S. company, Century Aluminum Co., said it plans to restart three production lines at a Kentucky-based smelter in response to the tariffs, and a startup aims to resurrect part of a closed smelter in Missouri. Together they amount to just 25% increase in available production capacity in the U.S.

But even if all dormant smelters were revived and domestic production more than doubled, it would only account for less than half of U.S. demand, the U.S.-based Aluminum Association says.

When he came to office, President Donald Trump pledged to eliminate red tape for businesses. But Constellium's experience at the U.S.-Canadian border shows how the tariffs seem to be working at cross-purposes with that goal.

The company buys aluminum beams for Ford trucks from Can Art Aluminum Extrusion Inc.'s plant in Lakeshore, Ontario, just outside the city of Windsor. Can Art itself uses aluminum that was produced at a Rio Tinto smelter in Saguenay, Quebec.

The beams, called rockers, help protect the cab of a truck by absorbing energy in the event of a collision. Can Art is the sole supplier that passed a durability test needed for the F-150 rockers, Constellium said. One U.S. supplier has tried unsuccessfully for four years to pass the test, Constellium said.

As the seller, Can Art is responsible for paying the 10% tariff when shipments of F-150 rockers cross the border, said company CEO Anthony Caputo. Constellium pays more for the aluminum it buys from Can Art because of higher raw aluminum prices, but can pass that cost along to its customers.

"Ultimately, it will get passed on to customer and consumer," said Constellium CEO Jean-Marc Germain.

A Ford spokeswoman said the company doesn't discuss specific supply agreements but would work with suppliers on any issues that might impact cost.

Other car manufacturers have been more blunt in their assessment of the tariffs. Toyota's chief executive of North America in March called steel and aluminum tariffs a "tax on the U.S. consumer," and Honda warned the tariffs would unnecessarily burden its customers.

Morningstar analysts estimated in March that steel and aluminum tariffs could raise the average price of a light vehicle by about 1%, or more than $300.

During a recent visit to Can Art's Windsor-area facilities, 210-pound aluminum cylinders were heated above 900 degrees in an oven and pressed through a hot die to create long beams that were stretched to remove any bends or imperfections, cut into four-and-a-half-foot sections, loaded on a truck and shipped to Van Buren, Michigan.

At the border, the beams are removed and weighed by customs agents for compliance with the 10% tariff. This process has slowed trucks sometimes by four to six hours, according to Constellium. The company now keeps another day's worth of inventory in Van Buren as a buffer, adding an estimated $100,000 a year in added costs that include insuring, moving and counting the additional inventory, said Mr. Krepps.

The delays also cost Can Art more through added paperwork, scheduling and planning requirements and longer trucking times.

In Van Buren, the beams are hole-punched, stretched, cut and hardened to create the rocker. They are then sent to Ohio for a treatment to help them adhere to Ford vehicle parts when they are assembled in Dearborn, Michigan, Kansas City and Kentucky.

Mr. Germain said the effort that goes into developing an automotive part such as rockers makes it tough to change aluminum suppliers, despite the tariffs.

"You don't change on a dime your industrial policies and supply chains because there is a one-off 10% duty," Mr. Germain said.

--Bob Tita in Chicago contributed to this article.

Write to Kim Mackrael at

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