Canada’s Aluminum Production and US Tariffs

Canada supplies over half of the aluminum available in the United States (see chart).  These sales of 2.8 million tonnes/year of raw aluminum from Canada to the US take place under agreements made between many companies. 

However, disrupting those business plans, the United States imposed tariffs of 50 percent on imported aluminum, effective June 4, 2025, after raising them 25 percent effective March 10 earlier this year.

Who will effectively bear the cost of the 50 percent tariff? US importers must pay it to the US government, but they may ask Canadian and other importers to bear some of the cost in the form of reduced prices. Of course, both US importers and Canadian exporters also lose because some otherwise beneficial transactions will be cancelled altogether due to lower profitability (higher cost for the buyer or lower price for the seller), the so-called deadweight loss to the North American economy.

Bargaining power between a US importer and a Canadian exporter will be determined by the alternatives that each party has to the existing agreements. 

The United States does not have productive capacity that could quickly and cheaply ramp up, nor many other sources to replace Canadian aluminum. In fact, US production of primary aluminum, which peaked at 4.64 million tonnes per year in 1980, fell to just 0.67 million tonnes in 2024.   

A key reason for this decline is that electricity costs rose significantly, making it uneconomic to refine and produce aluminum in the United States given its older, less efficient plants. Aluminum has often been called electricity in a solid form because takes a huge amount of electricity (17,000 kwh/tonne) to process bauxite ore – which Canada and the US need to import – into aluminum.  As a result, aluminum producers concentrate in areas that have a large supply of cheap electricity, such as Quebec, which accounts for over 90 percent of Canada’s 3.3 million tonnes production.

Another reason for the decline in US capacity is that Chinese production, subsidized using cheaper coal that powers the processing, has increased by a factor of ten since 2004. China now produces 60 percent of the world’s aluminum, compared to Canada’s 4 percent.

The US is seeking to modernize and rebuild its capacity. But the president of American aluminum producer Alcoa has publicly questioned optimistic timelines for building new US smelting capacity. To illustrate, a new 0.6 million tonne smelter will be built in Oklahoma, a jurisdiction which generates an energy surplus. It would be the second to be built in the United States in 45 years. But it is expected to be operational only in 2030 with the deal to procure it this electricity currently incomplete.

Securing electrical power is a growing challenge. Demand in the US is projected to rise at an annual rate of 1.7 percent in the period from 2020 to 2026, driven especially by new demands from data centres. This compares to essentially no changes in demand in the previous fifteen years.

The bottom line: Canadian aluminum cannot be replaced rapidly. US importers will have to continue to source aluminum from Canada or reduce their own output. This translates into a poor bargaining position, meaning US importers having to bear most of the cost of the 50 percent tariff, over and above the world or Canadian price for aluminum.

Ford and Alcoa, which operate smelters in Quebec and then imports the aluminum into the US, are two companies in this situation.  Both have publicly stated that they are paying tariffs (Ford in the hundreds of millions of US$, Alcoa US$115 million).

US Treasury Secretary Scott Bessent has acknowledged the pain that this tariff on aluminum has had on the US auto sector, such as on the production of Ford’s F150 pickup trucks.  He has indicated “We will be negotiating with Canada on those [aluminum tariffs].”

The lesson is that negotiating leverage often comes from what one sells to the other country, rather than what one buys. The strongest advocates for Canada are the US importers that are paying the tariff and bearing their costs.  Canadian negotiators should get a full inventory of US importers in the same situation as Ford and Alcoa, and not only for the case of aluminum.

But there is a broader lesson: Canadian production of industrial materials and parts reinforces US manufacturing competitiveness across the board – and the large US trade surplus in finished manufactured goods with Canada. Even when the bargaining positions are not as lopsided in favour of Canada, the “deadweight loss” from tariffs means both sides are likely to lose. Canada should make sure that the conversation on aluminum feeds the broader understanding of Canada’s contribution to US industrial competitiveness.

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.