June 12, 2025
Consumer Buying Prices

Section 232 of the U.S. Trade Expansion Act of 1962 allows the President to impose tariffs or other restrictions on imports that threaten national security. This is not subject to legal restrictions.  

“Re-establishing a more level playing field for domestic producers is critical but a Section 232 tariff of 50% threatens to undermine the very industry the administration aims to support" said Aluminum Association President & CEO Charles Johnson in response to increase Section 232 aluminum tariffs from 25% to 50%.  

These high tariffs are meant to increase domestic primary aluminum production. Trump put the 10% tariffs on aluminum into effect March 23, 2018. Since then, one of the seven U.S. smelters closed and two have been idled. Tariffs on aluminum were raised again this April to 25% and then to 50% on June 4.  In order for smelters to build brand new facilities, they would need a long-term commitment to the higher tariffs. However, the tariffs are subject to change based on who is president.  

Not many companies are willing to risk the billions of dollars needed for a new smelter with that amount of uncertainty. In addition, aluminum is energy intensive, and the U.S. is a high-cost energy producer. Few utilities are willing to commit to low cost, long-term contracts, nor is there an energy surplus here.  

The U.S. imports 82% of the aluminum we use. Canada exports 83% of the U.S. aluminum needed because they have inexpensive hydro power and a near-by consumer. As of last week, the Midwest premium was $.68 per pound and was up over 180% from the start of the year. With that tariff cost, Canada can be more profitable shipping their metal to Europe.  

The June 50% tariffs were also placed on steel and had a minimal effect on prices. U.S. imports only 17% of our steel and Canada supplies us with almost 23% of those steel needs. 

If the tariff strategy is to produce more prime aluminum and become less reliant on foreign suppliers, there are better ways to accomplish this without building energy intensive and expensive new aluminum smelters.  Here are the facts according to the Aluminum Association:

• Aluminum the U.S. imports from Canada is equivalent to more than 4 Hoover Dams worth of energy each year. 

• Aluminum smelters in Canada typically pay 50% or less for their energy than the U.S. costs.

• Every one aluminum smelter job in Canada supports about 13 U.S. aluminum jobs further downstream.

• Building new smelters will take 5 – 6 years, significant capital investment ($4 - $6 billion/facility) and long-term, competitive power contracts with the equivalent annual electricity usage of the city of Boston or Nashville.

What are the options?
 

• Restarting the two idled U.S. smelters would require long-term, competitively priced power contracts and still significant capital investment. These idled smelters would only meet around 15% of the current 4 million metric ton metal supply gap. 

• Recycled aluminum is about 95% less energy intensive than primary production.

• Improving our recycling rate will increase our self-sufficiency while we reduce the CO2 and improve the environment.

• Collecting and recycling the estimated 1 - 2 million metric tons of usable scrap currently landfilled or exported would meet 25% - 50% of the existing U.S. metal supply gap.

• Recycling 1 million tons of aluminum is equivalent to taking 321,507 cars off the road in one year. It also saves around 7,000 tons of CO2 compared to producing prime aluminum.

• New sorting technologies could unlock even more available scrap aluminum.

• The 50% tariffs have raised the Midwest premium from $.23 at the start of the year to $.68 as of June 6 and could continue to go into the mid $.70’s. It will have significant cost impacts on the aircraft parts, cars, cans, electric grid, boats, RV's, trailers, housing, and other products. As these tariffs are passed on, the demand for the end products will be reduced and inflation will increase.

Trump has been changing his tariffs on a very regular basis. I believe it is part of his negotiating strategy. We’ve all heard about the Wall Street traders who called Trump TACO, an acronym for Trump Always Chickens Outs. Are they right? We will see. My prediction is Trump will negotiate the 50% tariffs to 25% or lower.  

Negotiations with China are changing rapidly. Trump recently posted on Truth Social: “I like President XI of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!" 

Jamie Dimon, JP Morgan Chase CEO, returned from China May 30 and said American officials shouldn’t assume China will buckle in the face of incessant trade pressure. "I would engage with China. I just got back from China last week. They're not scared, folks. This notion they're going to come bow to America; I wouldn't count on that."  

For the new readers of Market Insights, VUCA is my favorite acronym that sums up what is always happening. The Volatility of policy change is constant. The Uncertainty and higher tariffs stifle our economy as businesses and consumers wait to see what the impacts are. The Complexity in decision making seems overwhelming. The Ambiguity adds to the chaos. And there you have it, VUCA once again.

The U.S. and China tariff issues are covered in more depth in the China section below.

INFLATION

Tariff impact not yet showing up
 

• The Consumer Price Index (CPI) for May rose 0.1%, down from 0.2% in April. Year over year it is up a modest 2.4%.

• Core inflation for May also rose 0.1%, down from 0.2% in April. The annual rate for the year remained at 2.8%.

• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure for April rose 0.1% in April and are up 2.1% in the past year, matching the lowest twelve-month change going back to early 2021. “Core” prices (which exclude food and energy) rose 0.1% in April and are up 2.5% versus a year ago, which also represents the lowest year-ago increase seen since early 2021. Some analysts claim official inflation figures continue to run above the Fed’s 2.0% target because of rents, but the “Super Core” version of PCE prices, which excludes all goods, energy services, and rents, is up 3.0% in the past year, worse than headline inflation.

• The Producer Price Index for April for final demand unexpectedly fell 0.5%, marking the largest monthly decline in five years.

MANUFACTURING

Tariff uncertainty is starting to appear

The Manufacturing PMI® ISM fell slightly in May to 48.5 from 48.7. One of the biggest factors was a reduction in inventories as most manufacturers rushed to buy before the increase in April tariffs took place. New Orders and Employment rose slightly while Production dropped to 44.0 from 48.3. Even though Q1 GDP dropped to -0.3%, industrial production in Q1 was up at a 5.4% annual rate while manufacturing rose at a 5.1% annual rate. 
 

• U.S. non-defense capital goods new orders, excluding aircraft, rose 0.2% in April after being unchanged in March.

• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, fell 0.1% after being up 0.3% in March.

• Construction spending declined slightly to 0.4% in April for the third month in a row. Single new family homes rose 10.9% in April, even with interest rates nearing 7%. Housing prices were down 2% and there are more new homes on the market now. Housing starts also rose in April.

• Car and light truck annualized sales for May fell to 15.7 million units from the elevated pre-tariff sales of April at a 17.3 million annual rate.

• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes were down 7.4%. 

CHINA

Impacts of the tariff trade wars

China’s economy is suffering more because of the tariff trade wars. The May official PMI remains in contraction at 49.5, up from 49.0 in April. The private Caixin also dropped to 48.3 from 50.4. Most of the drop was again attributed to tariffs. 

China manufacturers 30% of the worlds products and goods but only consumes 15%. Because of this strategy, China has been the largest and most important disruptor in the global trade system for about three decades. 

According to Nicholas Burns, the former Ambassador to China and held senior positions under both Republicans and Democrats, China has been dumping products around the world below the cost of production. Historically, this has been a killer for jobs in the U.S. and around the world. 

China’s economy is slowing. This could continue for decades due to problems with the housing bust, an aging and shrinking population, and lower consumption. Because of this, China needed a deal. That’s the reason why the Chinese met with the U.S. in Switzerland early last month and agreed to a deal. 

The U.S. dropped the tariffs from 145% to 30% which is still very high. About 2 to 3 million American jobs depend on trade with China. Manufacturing jobs in China depend on trade with the U.S. Because of this, neither country can afford to break the economic ties that have bound our countries over the last 40 years. Even though current tariff levels are lower than before, much of the trade between the two countries may no longer be economically viable. 

The agreement makes it possible for consumer products to be back on shelves in a few months. China also agreed to start shipping rare earth metals that are critical for car production and military needs. 

The legal system intervened and deemed the tariffs unlawful. The Trump administration appealed the decision. We now expect to see a ruling by the end of July, and it may reach the Supreme Court. This also reduced the need for several countries to negotiate with Trump. The soap opera continues. For those tuning in, it becomes another “we will see.” 

The Chinese are well known for making and breaking agreements. For instance, when Trump negotiated a tariff deal during his first term, China agreed to purchase $200 million worth of soybeans per year, and they reneged on that deal. We should all be concerned about deals with China. 

In the Geneva negotiations, it was determined that rare earth metals would be shipped to the U.S. They are critical in automotive, defense, aerospace and semiconductor manufacturing. Without rare earth magnets, automotive companies predict that production on some models will grind to a halt in 4 weeks.  

China walked back the shipment of rare earth metals because the U.S. restricted sales of computer chips as well as restricting Chinese access to American universities. This has never happened before. 

Our relationship with China will continue to be VUCA for a long time.

METALS

How long will 50% tariffs last?

On June 2, spot aluminum closed at $1.55. After the June 4 tariff increases, it rose to $1.78 as the premium spiked to $.68.  The annual Harbor Aluminum Summit started at the same time, which was amazing timing. Harbor has been one of the most accurate aluminum forecasters for some time. In general, they have been bearish and correct. They point ed out that for the last 12 years, annual LME real prices have averaged within $2250 to $2780.  

Harbor's current analysis has changed to bullish. They based this on a number of factors. They expect manufacturing to expand after being in contraction for 30 months. They also see interest rates falling and the money supply expanding. Alumina inventories, used to produce aluminum, are at the bottom. Aluminum inventories are in balance, and they expect some supply expansion world-wide but not enough to keep up with demand.  

On the negative side, oil prices are low, and smelting costs are also low. Smelter profitability is high. China still faces long term problems.  

With these factors in mind, Harbor expects LME prices to average $2560 for the second half of the year and $2730 for 2026 going into 2027. They are also bullish on the Midwest premiums. This is the first time I can remember Harbor’s forecast above the consensus of other aluminum forecasters. As Jorge Vazquez, CEO of Harbor said, “We are bullish.” My crystal ball is not quite that optimistic. I hope Harbor is right. 

June scrap prices for aluminum, steel and stainless remained virtually unchanged from May. Copper was up 8%.

CLOSING

All in all, I don’t feel as though any of the tariff negotiations will end any time soon. My hope is that it all shakes out and we will have something concrete to build our businesses on. 

“Less is known than people think. ” - David Hockney