Trump’s tariffs

During the first-quarter earnings call, Alcoa (AA) took a swipe at the Section 232 tariffs that President Trump imposed last year. From the very beginning, Alcoa didn’t support the broad-based tariffs. Downstream metal users like General Motors (GM) and Ford (F) said that the tariffs have taken a toll on their earnings. US steel and aluminum stocks have underperformed the S&P 500 (SPY) since the tariffs were imposed.

Trump’s Tariffs Could Help China

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Alcoa’s CEO Roy Harvey expressed concerns about reports that aluminum imports from Canada could be covered under a quota, which would replace the current 10% tariff. Alcoa is paying tariffs on the aluminum that it ships from its Canadian smelters to the US. Harvey said that “tariffs have not solved the industry’s challenges, which stem from highly subsidized smelting capacity in China, that has resulted in surplus production.” While the Trump administration has been trying to impose quotas to grant Section 232 exemptions, Canada and Mexico have been demanding a full exemption from Section 232 tariffs.

Aluminum markets

In response to an analyst’s question, Harvey pointed to distortions in aluminum markets after the Section 232 tariffs. Harvey specifically referred to more aluminum can imports from Mexico to substantiate his point. He added that Mexico has been importing more can sheets from China, which suggests that Chinese aluminum is hitting US shores through Mexico.

Harvey also noted that if aluminum imports from Canada are covered under quotas, it could mean that US buyers would buy more aluminum from China to meet the shortfall. Chinese aluminum exports hit a record last year. The US aluminum smelting capacity is short of the domestic demand, which means that the country imports most of its aluminum requirements. Canada is the largest aluminum source for the US.

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