AMU: Canada's next steps on aluminum

The Trump administration did not react well to the following:

• On Jan. 16, Canada and China reached an agreement to lower import duties on Canadian canola seed, while increasing trade in seafood and peas. China represents Canada’s second-largest export market, and Canadian Prime Minister Carney has set a goal of increasing exports to China by 50% by 2030. In return, China secured the right to export 49,000 electric vehicles (EV) to Canada at a most-favored-nation duty of just 6.1%. This has raised questions in Washington over whether Canada violated a core principle of the United States-Mexico-Canada (USMCA) agreement – namely, that members should not enter bilateral trade deals that undermine agreed-upon tariff or quota commitments. The EV provision quickly became the flashpoint.
• On Jan. 20, Carney delivered his Davos speech. While he did not explicitly mention the US, the message was clearly aimed at President Donald Trump: Canada would no longer allow itself to be coerced or bullied by US threats and insults. Canada was moving on. Any optimism that Canada might eventually receive relief from Section 232 tariffs was quickly dashed.
• On Jan. 24, Trump threatened Canada with 100% tariffs on all goods entering the US should Canada pursue a broad trade agreement with China. At this point, it remains unclear whether such a threat would materialize, when it would take effect or whether it would be stackable on top of existing Section 232 tariffs.

It’s tough to negotiate when you don’t know the counterparty’s “ask”

It is hard to fault Canada for seeking alternative export markets given the hostile environment in Washington. There is no evidence that unofficial talks are taking place to secure tariff reductions on Canadian aluminum or steel. One of the biggest challenges is simply understanding what the US actually wants from Canada.

Recent events suggest one possible concession: backing the US plan to assert control over Greenland under the guise of Arctic security. Canada, however, remains firmly committed to the North Atlantic Treaty Organization (NATO).

Critical minerals are frequently mentioned in rhetoric, but there has been no indication from the Trump administration that is seeking concessions from Canada on supplies of tungsten, nickel or rare earths.

What’s next for Canada

There is widespread expectation that USMCA could be reopened for renegotiation by mid-summer 2026.

However, in recent markets to the Detroit Economic Club, Trump described USMCA as “irrelevant.” On Jan. 30, 2020, he had previously called it “the fairest, most balanced and beneficial trade agreement we have ever signed into law.”

So which is it?

For Canadian and Mexican business executives, planning amid such contradictory statements has become increasingly difficult.

Canada is following the path Carney outlined in Davos. There is little value in railing against the perceived unfairness of the situation. The practical response is to retool and identify new alternatives. The deals struck with China are an example of this pragmatism.

Trump views Canada’s recent concessions to China as the opening move toward a broader bilateral trade deal – one that, in his view, would contravene USMCA.

Yet with International Emergency Economic Power Act (IEEPA) tariffs now under review by the Supreme Court and renewed threats of 100% tariffs, has Trump already signaled that he considers USMCA effectively dead? Canada appears to think so and is acting accordingly.

What is the future for Canadian aluminum? US willingness to pay the tariff!

Canadian aluminum supplies roughly 70% of US requirements.

Whether that continues depends on Trump’s tariff policy – and on the willingness and ability of the US aluminum complex to absorb the cost.

In 2025, the immediate effects of higher tariffs were evident.

Canadian exports to the US plunged. In March 2025, Canada supplied 250,096 metric tons to the US, according to the US International Trade Administration’s Aluminum Import Monitor. After duties increased from 10% to 25% in March, imports fell to 147,276 tons in May. When tariffs rose again to 50% in June, Canadian imports dropped to a low of 101,438 tons in July.

Exports remained below historical averages until December, when shipments rebounded to 169,781 tons. That recovery was driven by the Midwest premium finally covering the full cost of the duty, allowing Canadian producers to return to profitability.

At the time of this writing, Midwest premiums had breached $1.00 per pound, while the London Metal Exchange’s (LME) aluminum cash settlement hovers around $1.48 per pound.

The downstream aluminum industry operates on a “pass-through” model, where Midwest premiums are embedded in fabrication costs and passed on to final consumers. At some point, however, automakers, beverage companies, and other end users will balk.

Anecdotally, a retired senior metal executive recently noted that a 12-pack of soda now sells for $11.95 and questioned how much of that price is attributable to aluminum. The math is straightforward: aluminum accounts for a growing share of the final selling price, and eventually consumers push back.

The point is simple: endless escalation in premiums and prices cannot continue indefinitely. Consumption will suffer. That is a serious concern for downstream fabricators and the Canadian primary producers that supply them.

Europe: A natural alternative market

Canadian producers are not sitting on their hands waiting for conditions to improve.

Exports to the EU have already begun, and Europe is a natural market for Canadian metal. Canada’s aluminum is low-carbon, aligning well with the EU’s Carbon Border Adjustment Mechanism (CBAM).

While Brussels has watered down the first phase of CBAM to tax only direct emissions, excluding the much larger indirect emissions associated with power generation, CBAM is expected to become more onerous over time for high-carbon producers. That favors Canada.

Canada also enjoys duty-free access to the EU, allowing it to capture the premium associated with duty-paid metal, which can reach up to 3% of the metal’s value. Another win.

Longer term, primary aluminum production in mainland Europe, excluding Iceland and Norway, is likely to decline. This represents roughly 2 million metric tons of capacity that must be replaced

Iceland and Norway are largely tapped out, and Russia, once a major supplier, may never be fully trusted in Europe again.

That leaves Canada well positioned to fill the gap.

Demand closer to home: Mexico

Mexico has emerged as a major consumer of primary aluminum, consuming more than 1.1 million metric tons by the end of 2024.

Canada already supplies part of that demand, competing with seaborne metal from the Middle East, South Africa, and China.

If the US imposes additional punitive tariffs on Canada, Canadian producers are likely to redirect more duty-unpaid metal to Mexico as the US market becomes effectively closed.

One caveat: Mexico itself could face retaliatory pressure from the Trump administration. And its large automotive, appliance, medical and aerospace sectors could suffer, shrinking overall aluminum demand.

Why this matters

A Midwest premium at $1.00 per pound ensures that Canadian imports continue – for now. A stackable 100% tariff on top of the existing 50% Section 232 duty would crush trade flats.

End consumers would not be able to absorb those costs. Substitution into steel, polyethylene terephthalate (PET), vinyl or wood would follow. No one wants that outcome.

Canada will not wait idly for the sky to fall. Producers are preparing Europe and Mexico to absorb additional metal. Europe appears the most promising alternative. Mexico remains conditional depending on how it fares under US tariff pressure.

Asia is notably absent from this discussion because it offers limited appeal for Canada.

Only one smelter, Kitimat, in British Columbia, is well positioned to serve Asian markets. Physical premiums in Asia remain low relative to Europe and Mexico and are unlikely to improve, particularly as Indonesia and India continue to ramp up production.

Bottom line, Canada is actively courting new markets outside the US. These alternatives will not replace US demand overnight, but Canada can make meaningful inroads into Europe within one to two years.

President Trump often says, “We don’t need anything from Canada.”

The US downstream aluminum sector would quietly disagree.

A scenario with little or no Canadian primary aluminum would force US consumers to rely on seaborne imports, introducing greater cost and supply-chain complexity. In that scenario, the US downstream sector loses.

The hope is that cooler heads prevail and Canada remains a key trading partner to the US.