US President Donald Trump has reaffirmed his stance by announcing levies of 25% on all goods from neighbours Canada and Mexico, and an additional 10% for products from China. Together with the February increase in tariffs on China, this takes the average tariff on Chinese imports to around 40%, roughly double the level of when Trump took office. This announcement follows after a 30-day delay post the initial announcement in early February.
The rising threat of a trade war
Trump’s tariffs on Canada have already prompted a response, with PM Justin Trudeau announcing a retaliatory 25% tariff on C$30 billion of US imported goods, while China responded with a combination of measures to the initial announcement in February. We expect further announcements from Canada, Mexico and China in coming days and weeks. This policy announcement makes a Trade War scenario more likely, where an increase in tariffs would impact the world economy. This would raise prices and have a substantial negative impact on GDP and industrial production. But, this is still not our base case scenario.
Is US tariff policy transactional or transformational?
Many commentators assume the imposition of tariffs is a ‘transactional’ tactic to extract concessions from trade partners. Increasingly it is looking as though the imposition of tariffs has ‘transformative’ aims instead, i.e. reducing the US trade deficit and re-shoring manufacturing. However, these aims will not be easily achieved with tariffs alone.
Increased tariffs in Trump’s first term failed to close the aggregate trade deficit, and US manufacturing output actually declined after the tariffs were put in place. It is not clear how long transformative goals will survive contact with economic and political reality. These tariffs will impose heavy costs on US firms and consumers, particularly in the auto sector, at a time when there are increasing signs the US economy is slowing. If there is a domestic political backlash, the administration may quickly re-consider its approach.
For more information on this, see CRU’s recent webinar.
Canadian and Mexican steel and aluminium may face a 50% tariff
It remains uncertain whether the intention of imposing tariffs on Canadian and Mexican goods is in addition to the other announcements of tariffs on steel and aluminium under Section 232. If these are additive, the tariff rate could double to 50% when Section 232 comes into effect on 12 March. That being said, there are still uncertainties whether aluminium – which is classified as an Energy Critical Mineral – would face a 10% or 25% tariff.
This 50% rate is not in our base case and will increase US prices/premia as US manufacturers will still rely on steel and aluminium imports for the foreseeable future. The Midwest Premium for aluminium, which is one of the two major components of the Midwest Transaction Price, has already doubled over the past few weeks. These tariffs would support an even higher level than what the market is currently seeing.
If these higher prices/premia are sustained, this will divert trade flows and lower demand. Primary aluminium imported from Canada, which makes up 70% of the US’ total imports would face major challenges, and trade would adapt quickly towards other regions. CRU’s steel analysis shows higher prices may cause demand destruction as tariffs are applied to light weight vehicles and individual vehicle components that are exported to the US market, among other manufactured goods.
As US steel and aluminium demand decreases, Canadian and Mexican producers may have to find new customers in markets which do not impose tariffs, dampening prices there as new supply becomes available.
Trumps tariffs on Canada will disrupt the aluminium supply chain
Trumps tariffs on Mexico and Canada, and any possible retaliatory tariffs will upset aluminium supply chains in the US. For US rolling mills and extruders, the onshoring push will continue and they will likely gain volume despite significant downside pressure being applied to top line demand growth. However, metal supply for these producers will be a major challenge. CRU aluminium analysis shows that out of the almost 4 million tonnes of primary aluminium imported in 2024, Canadian smelters accounted for over 70%. On top of that, there is currently 600 kt of scrap being imported into the US from its USMCA partners.
US tariffs on Canada will raise potash prices and may divert Canadian supply elsewhere
The US, which has limited domestic potash production, obtains most of its potash from abroad, with 75–80% American demand supplied by Canada annually. Increasing tariffs on Canda will lead to price increases in the short term as the US has few alternatives to fully replace Canadian product.
While imports from other suppliers – namely Russia and Israel will increase – logistical bottlenecks in NOLA will limit the amount of potash entering the market from non-tariffed suppliers. In the longer term, as supply chains adapt, Canadian products may be directed to other major markets such as Brazil and Europe, potentially constraining price increases in those markets.
US copper cathode market net trade exposure to Canada and Mexico is limited
The US imports ~60% of its domestic refined copper requirements, but out of the approximately 900,000 t drawn from overseas sources in 2024, only 15% was from Canada and 2% from Mexico. Moreover, the US actually exported 17,000 t more to those two countries than it imported last year. Therefore, while there will be logistical challenges – which may be reflected in higher physical spot premiums and a continuing positive arb between Comex and LME – cathode flows in the North American market could be reoriented, supplemented with additional, primarily South American, metal from elsewhere. Of course, the Section 232 probe into copper imports will likely complicate the narrative in the months ahead.
Higher prices will pass-through to zinc consumers
Around half of all zinc consumption in the US is reliant on Canadian and Mexican exports. Export tariffs will be passed onto customers almost entirely. It’s worth noting we do not expect producers to absorb much of the tariffs charges. The average zinc price (premium) for US consumers is set to rise notably at first, gradually stabilising at a higher level. This heightened pricing environment raises the risk of demand decline through substitution.
US Tariffs on Canada expected to raise nickel premiums and disrupt trade flows
The US does not produce nickel in a finished form suitable for consumers and is therefore entirely dependent on imports, with Canada historically supplying around half of its primary nickel. The imports from Canada come from one producer – Vale. The introduction of tariffs on Canadian nickel is expected to lead to higher spot premiums as it disrupts current trade flows. However, in the short term, the impact may be mitigated as market participants are understood to have accelerated shipments ahead of the tariff implementation.
The imposition of tariffs on trade will be highly disruptive to manufacturers with cross-border supply chains, raising costs and imposing barriers, which in the short term will raise prices. CRU will continue to monitor and inform our clients as more information becomes available.
You can find more CRU content on Trump’s tariffs via the following Insights and webinars:
Commodity markets under Trump tariffs: Impact and analysis
Trump tariffs: What it means for steel and aluminium
What do Trump Tariffs mean for the global aluminium industry?
