Aluminum Tariffs

Understanding the Real Impact on Independent Manufacturers

The announcement of 50% tariffs on aluminum imports has been presented as a way to bring manufacturing jobs back to America. But what will these tariffs actually mean for the economy, and particularly for small manufacturers? Let's examine the data behind the aluminum industry and consider what these changes will mean in practice.

The Current State of US Aluminum Production

The United States has six aluminum smelting facilities with a total capacity of 1.64 million metric tons. Currently, only five are operational, with an available capacity of 1.36 million metric tons. More concerning, these facilities are running at just 52% of capacity, producing about 750,000 metric tons annually.

In March 2023, a significant development occurred when a permanent closure was announced for a seventh smelter located in Ferndale, WA, that had ceased operations in 2020. Another smelter in Hawesville, KY, has been temporarily shut down since 2022, further reducing domestic capacity.

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2024

This underutilization didn't happen by accident. In recent years, aluminum prices have declined significantly, making domestic production less economically viable. In 2023 alone, prices fell approximately 15%, which prompted producers to cut their output by 13% in response. The estimated average annual U.S. market price decreased to 130 cents per pound in 2023, down from 152.6 cents in 2022.

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2024

The Employment Picture

The employment impact has been significant. According to USGS data, aluminum industry employment has decreased from 32,900 workers in 2019 to approximately 30,000 in 2023 – a loss of 2,900 jobs. This corresponds with the decline in primary production from 1,090,000 metric tons in 2019 to just 750,000 metric tons in 2023.

Based on this relationship, we can estimate that the industry employs roughly 8.5 workers per thousand metric tons of output. This ratio is important when we consider the potential job creation from tariffs. If domestic smelters were to operate at 100% of their existing capacity, producing 1.64 million metric tons (up from the current 750,000), that would create approximately 8,000 new jobs.

The Demand Reality: More Than We Can Produce

Even at full capacity, domestic production can't meet US demand. In 2023, the United States consumed approximately 4 million metric tons of aluminum (apparent consumption). Even if every existing US smelter operated at 100% capacity, we would still need to import 2.64 million metric tons annually – about 66% of our total consumption.

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2024

Transportation applications account for 35% of domestic aluminum consumption, with the remainder distributed across packaging (22%), building (14%), electrical (9%), consumer durables and machinery (8% each), and other applications (4%).

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2024

Our aluminum imports come from multiple countries, with Canada being our largest supplier by far, accounting for 52% of imports between 2019-2022. Other major sources include the United Arab Emirates (8%), Bahrain (4%), Russia (4%), and other countries making up the remaining 32%.

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2024

Secondary Aluminum: An Important Part of the Picture

An often-overlooked aspect of the aluminum market is the significant role of recycled metal. In 2023, aluminum recovered from purchased scrap in the United States was about 3.3 million tons, with about 55% coming from new (manufacturing) scrap and 45% from old scrap (discarded aluminum products).

This secondary production is critical to the overall supply picture. Aluminum recovered from old scrap was equivalent to about 38% of apparent consumption in 2023. This recycling stream operates somewhat independently from primary production and may be less directly affected by tariffs on imported primary aluminum.

The Tariff Math: Winners and Losers

A 50% tariff on imported aluminum will undoubtedly raise domestic prices, potentially making it economically viable for US smelters to operate at full capacity again. This would create approximately 8,000 jobs in the primary aluminum production sector – a positive development for those communities.

It's worth noting that the United States has already implemented targeted aluminum tariffs in the past. In March 2023, a 200% tariff was announced on imported aluminum products and derivatives from Russia, authorized under section 232 of the Trade Expansion Act of 1962, which allows trade restrictions when imports threaten national security.

However, the broader price increases from a 50% general tariff will affect every downstream manufacturer that uses aluminum as an input. The transportation industry, packaging companies, construction firms, and countless small manufacturers will face higher costs. These industries collectively employ far more workers than primary aluminum production.

Small manufacturers will be particularly hard hit. Unlike large corporations with global supply chains and significant bargaining power, small businesses often lack the resources to quickly adapt to dramatic input price changes. They may have less ability to pass costs on to their customers, especially if they compete with larger firms or imported finished goods.

How Should Small Manufacturers Respond?

If you're a small manufacturer who relies on aluminum inputs, here are some practical strategies to consider:

1. Engage Your Customers in Problem-Solving

Transparency is key during price disruptions. Rather than simply passing on price increases, engage your customers in finding solutions together. This approach leverages your proximity advantage – the deep understanding that comes from direct customer interactions.

• Share the specific impact of aluminum price increases on your products
• Discuss potential adjustments to product specifications that could reduce costs
• Consider joint inventory strategies if you expect prices to fluctuate
• Explore whether your customers can accept slightly longer lead times to allow for more efficient production scheduling

This collaborative approach often leads to stronger relationships and distinguishes small manufacturers from larger competitors who might take a more transactional approach.

2. Explore Secondary Aluminum Options

Not all aluminum needs to be primary (directly from smelters). Secondary aluminum, produced from recycled scrap, typically has a smaller carbon footprint and may be less affected by tariffs on primary aluminum imports.

According to USGS data, secondary production from old and new scrap in the United States was about 3.3 million tons in 2023 – significantly higher than primary production. This indicates a robust market for recycled aluminum that small manufacturers might be able to leverage.

• Connect with local scrap processors who might provide steady sources of aluminum
• Evaluate whether secondary aluminum meets your quality requirements
• Consider whether your marketing could highlight the sustainability benefits of using recycled materials
• Explore whether combining materials (primary for critical components, secondary for others) might work for your products

3. Optimize Product Design and Material Usage

Rising material costs create strong incentives to reduce waste and optimize designs.

• Review your current manufacturing processes for opportunities to reduce scrap
• Consider design modifications that might reduce the amount of aluminum required
• Explore whether alternative materials might substitute for aluminum in some applications
• Invest in more precise cutting and forming technologies to reduce waste

These improvements often yield benefits beyond just material cost savings, including reduced energy usage and improved product performance.

4. Advocate for Your Business Interests

While adapting to new market realities is essential, it's also important to make your voice heard in policy discussions.

• Contact your congressional representatives and senators to share how tariffs affect your specific business
• Engage with industry associations that represent small manufacturers
• Document and share stories about how tariffs impact your employees and community
• Propose policy alternatives that might better balance competing economic interests

Looking Forward

Tariffs, like any policy intervention, create both opportunities and challenges. The 8,000 potential jobs in aluminum smelting must be weighed against impacts on the far larger number of jobs in industries that use aluminum as an input.

For small manufacturers, this situation represents another example of why the Underdog Principles matter. Your proximity to customers, focused positioning, and clear purpose will help you navigate these challenges more nimbly than larger competitors. While you can't control global trade policy, you can control how you respond to it – and that response may well determine whether these changes become a crisis or an opportunity for your business.

Small businesses have always found ways to adapt to changing conditions. By staying focused on your unique strengths and the specific needs of your customers, you can navigate even significant disruptions like these aluminum tariffs.