^{A worker inspects wire rod at TIM stainless steel wire factory in Huamantla, Mexico.Tomas Bravo / Reuters file}

Aluminum Tariffs—A Misfired Strategy?

The U.S. government introduced aluminum tariffs with the intention of revitalizing domestic production. However, instead of fostering a manufacturing resurgence, the tariffs are reshaping trade routes and pushing up prices for consumers. The root problem lies not in a lack of demand but in the high cost of energy, which remains a critical hurdle for U.S. aluminum producers.

Why Tariffs Aren’t Working: The Power Problem

Aluminum production is highly energy-intensive, with electricity costs being a major part of the overall expense. In the U.S., energy prices are significantly higher compared to competitors like Canada, Norway, and the Middle East. According to Ami Shivkar, principal analyst at Wood Mackenzie, energy costs for U.S. aluminum smelters hover around $550 per tonne, while Canadian smelters manage the same at approximately $290 per tonne.

One of the key reasons is that U.S. smelters mostly depend on short-term energy contracts, unlike Canadian and Norwegian producers who secure long-term deals or have dedicated power generation facilities. This disparity makes it almost impossible for U.S. manufacturers to compete on a global scale.

Global Shifts: The Rise of Tech and AI in the Energy Market

Compounding the problem is the booming demand for electricity from non-industrial sectors, particularly tech companies. The rise of artificial intelligence and data centers has intensified competition for energy resources. Hydro’s CFO, Pål Kildemo, pointed out that tech firms, with their high profit margins, can easily outbid aluminum producers for power.

For instance, Hydro, one of the world’s largest aluminum companies, reported an 8.3% profit margin in Q1 2025—significantly lower than tech giants who often operate with margins in the high double digits. This economic imbalance further cements the tech sector's dominance over energy resources.

Aluminum Production: A Grim Reality in the U.S.

The consequence of high power costs is starkly visible. In March 2023, Alcoa Corporation announced the permanent closure of its 279,000 metric ton Intalco smelter, citing unsustainably high electricity costs. Similarly, in June 2022, Century Aluminum was forced to idle its Hawesville, Kentucky smelter—the largest producer of military-grade aluminum in North America—because energy costs had tripled within a short period.

These closures reflect a broader trend of smelter shutdowns across the country, with companies unable to sustain production in the face of skyrocketing energy bills. As a result, rather than increasing domestic output, the U.S. aluminum industry is contracting.

Reshuffling Global Trade Flows: Winners and Losers

While tariffs have failed to boost U.S. aluminum production, they have undeniably altered global trade flows. Initially, higher tariffs on Canadian aluminum—25% on top of aluminum-specific tariffs—made it more lucrative for Canadian producers to export to Europe. This shift briefly pushed European aluminum into the U.S. to fill the supply gap.

Moreover, companies like Hydro, which uses both domestic scrap and imported Canadian metal, have adjusted their pricing to reflect these changes. The cost of U.S. scrap aluminum has increased to match the tariff-driven Midwest premium, demonstrating that even domestic materials are impacted.

Downstream Impact: Higher Prices for Consumers

Tariffs inevitably lead to price increases for finished products. Take Thule Group, for example, a Hydro customer that makes rooftop cargo boxes. Despite manufacturing most of its U.S. goods domestically, Thule has had to raise prices by about 10% due to increased costs for raw materials like aluminum and steel.

This downstream impact reflects the broader issue: while tariffs may protect some industries from foreign competition, they also inflate prices for consumers and businesses alike.

Industry Perspective: A Long Road Ahead

Industry experts believe that for the U.S. aluminum sector to recover, it must address its energy challenges. Investing in stable, affordable power sources—such as nuclear, wind, or solar—could be one solution, but tech companies are rapidly consuming new energy production, leaving little for heavy industries.

Without a fundamental change in energy availability and cost, it seems unlikely that U.S. aluminum production will see a meaningful revival. Until then, tariffs will continue to influence trade flows rather than domestic output.

The Complex Path to Recovery

While tariffs were introduced with the intention of boosting U.S. aluminum production, the reality has proven far more complicated. High energy costs and competition from more efficient global producers mean that the U.S. aluminum industry remains stuck in neutral. To truly revive domestic smelting, the industry will need not just policy changes but a comprehensive approach to energy pricing and availability.

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