Read more in the March 14 edition of Invert Insights.
The steep tariffs proposed by President Donald Trump on Canadian aluminum imports could have far-reaching consequences for the U.S. economy. If enacted, a tariff of 25% (or more) could significantly raise prices, affecting multiple industries, from electric vehicles to renewable energy infrastructure.
As shared by Trellis, the American aluminum industry has been in a steady decline for decades. While the U.S. once produced 30 percent of the world’s aluminum, it now accounts for just 1.1 percent. Meanwhile, domestic demand is growing, particularly in the clean energy sector. The transition to electric vehicles and renewable power sources has heightened the need for aluminum, which is lightweight and essential for battery-powered cars and solar panels.
Aluminum production is energy-intensive, contributing around 2-3 percent of global emissions. Canada, the world’s fourth-largest aluminum producer and leader in low-carbon aluminum production, supplies about three-fifths of U.S. aluminum needs, primarily using hydroelectric-powered smelters, which have a lower carbon footprint than U.S. smelters reliant on fossil fuels. Since U.S. smelters primarily rely on fossil fuels, increasing domestic production without transitioning to clean energy could lead to higher emissions. The Inflation Reduction Act provided funding for a new low-carbon “Green Smelter,” but recent funding cuts have cast doubt on its future. Without access to clean Canadian aluminum, the U.S. risks slowing its progress in reducing industrial emissions and meeting clean energy targets.
Beyond economic concerns, the tariffs could hinder U.S. climate goals. Because of the rising costs, tariffs may slow the deployment of these technologies, delaying climate progress. Higher costs for materials like aluminum may divert resources away from investments in clean energy initiatives as businesses adjust to increased material expenses and may slow the deployment of these technologies. In the long term, if Canadian aluminum producers turn to other markets, the U.S. may struggle to secure enough low-carbon aluminum in the future, forcing greater reliance on carbon-heavy alternatives.
Experts argue that imposing tariffs on Canadian imports could raise costs for American manufacturers, making them less competitive globally. While Trump’s tariffs may temporarily boost domestic production, history suggests they could also harm American businesses and consumers by driving up prices. With alternative markets like Europe available, Canada may soon look elsewhere for buyers. As the Pembina Institute points out, “In the longer term, in the face of an increasingly unpredictable U.S. and a volatile world, it’s clear our economy must fundamentally change. We must find a new path — one that isn’t overly reliant on the U.S. and that ensures a strong, resilient Canada, better insulated against future external shocks.”
As CBC points out, tariffs might not all be bad. They share that Canada & the US had been among the list of countries discussing carbon tariffs or carbon border adjustments as an opportunity to level the playing field and make domestic products more competitive while helping achieve climate goals simultaneously. It’s worth noting that for these types of policies to be enacted, it relies on a productive trade relationship, with both countries establishing a carbon pricing system and associated tracking systems.
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💡 Many are calling out President Trump’s tactics as chaotic and tumultuous, and now is the time to focus on the facts and not get caught up in the hype – a sentiment echoed by Canadian business leaders like Arlene Dickenson. By combining diplomatic, economic, and environmental strategies, Canada can effectively position itself as an indispensable and sustainable trade partner, reducing its vulnerability to U.S. tariffs.
💡 Now is the time for Canada to diversify its import and export agreements with a focus on reducing dependency on the United States. There is a global need for materials like low-carbon aluminum, and expanding trade to Europe and Asia will help diversify and minimize the risk imposed by reckless US policy making.
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