November 27, 2024 - Trump floated the trade barriers Nov. 25 on Truth Social, saying the measures would stay in place until Canada and the US curb cross-border flows of illegal immigrants and fentanyl, which is a widely abused narcotic in the US.

The three countries accounted for 41% of the value of US imports of metals and minerals in 2023, according to a Commodity Insights analysis of data from the US International Trade Commission. Key imported products included gold, silver, steel, unwrought aluminum and base metals.

Raising the cost of these materials will hurt US manufacturers and could upset US supply chains, making them more dependent on less friendly countries, experts said.

"A lot of those high-increase products are related to metals and mining," Kyle Meng, associate professor of economics at the University of California, Santa Barbara, said in an email. "The reason is simple: The US imports a lot of these industrial inputs from Canada and Mexico."

Canada provided the most metal and mineral exports to the US in 2023, followed by China and Mexico, according to International Trade Commission data. Canada accounted for $46.97 billion of US metal and mineral imports, while China and Mexico followed at $28.32 billion and $28.18 billion, respectively.

Energy Transition Could Slow

Experts and industry participants flagged increases in prices for US manufacturers in emerging energy transition industries, including battery production, as well as the defense industry, as an inevitable consequence of the proposed tariffs.

The US only has a single nickel mine, while Canada supplies the US with about half of its nickel needs, Pierre Gratton, president and CEO of the Mining Association of Canada, told Commodity Insights. Higher prices will have an impact on manufacturers including US defense contractors, Gratton said.

"It could lead to the US importing nickel from Indonesia instead, which would then increase US dependence on Chinese production, as China dominates nickel production in that country," Gratton said. "So, tariffs on Canadian nickel would go completely contrary to two other fundamental Trump objectives: national security and reducing dependency on China for critical minerals."

Meanwhile, raising prices on raw materials such as graphite could make the US less competitive as a vehicle maker amid the accelerating energy transition. All battery-grade graphite is currently sourced from China, said Gavin Montgomery, a principal mining analyst covering critical minerals at Commodity Insights.

"Basically, if tariffs on graphite are increased further, it will increase costs of US-made [electric vehicles] given all 'battery-grade' graphite is currently sourced from China," Montgomery said.

The tariffs could also hit exploration budgets for 2025 and decrease financings in Canada, said Kevin Murphy, director of metals and mining research at Commodity Insights.

More broadly, the tariffs will drive overall consumer prices higher, said Ernest Tedeschi, director of economics at the Yale Budget Lab. Tedeschi expects prices to rise 0.75% before accounting for consumer substitution or second order effects.

That's like getting four to five months of typical inflation all at once, Tedeschi said.

"For the average household, that would be the equivalent of a loss in purchasing power of real after-tax income of $1,200 annually in 2023 dollars," Tedeschi said. "So, meaningful."

US Metal Prices Could Gain

Still, domestic US metal producers are bound to benefit from trade barriers hitting foreign competition.

If Trump's tariffs went ahead, it would support US steel prices, Ali Oktay, a senior analyst covering US ferrous markets at Commodity Insights, said in an email. It would also make US producers less likely to idle any domestic capacity, while new US supply might come onstream faster, Oktay said.

"[In] either case, the news will push buyers stock ahead of that, which will support spot pricing," Oktay said.

US metals and mining industry groups expressed support for Trump's planned policies protecting US industry, but pointed to targeted tariffs as their preferred strategy.

The Aluminum Association would welcome policies tackling "unfair" global trade, but continued exemptions for Canadian aluminum were "vitally important," a spokesperson told Commodity Insights. The trade group pointed to US dependence on Canadian aluminum, saying about two thirds of US primary aluminum come from Canada.

"Open, tariff-free aluminum trade with Canada has underpinned much of the more than $10 billion in domestic investment the industry has made over the past decade," the spokesperson said.

Likewise, the National Mining Association underscored its call for targeted tariffs to protect US miners from foreign competition.

"With a considerable amount of uncertainty ahead, we look forward to working with the next administration to explore the range of options available to help US mining regain its competitive edge," a spokesperson for the industry-backed group said.

More broadly, some trade experts warned that Trump's use of heavy hitting tariffs against close trading partners risked upsetting global trade and alliances.

"It's a rude wake-up call several months in advance of inauguration day," said Marc Busch, a professor at Georgetown University who has advised the US on trade barriers. "The biggest price that everyone's going to pay is this tremendous trade uncertainty that is far more damning than the numbers themselves."

One consequence may be that targeted countries look to form trade alliances that do not include the US, Busch said.

In response to Trump's tariff threat, Canada flagged the close relationship between the two countries and the importance of Canada to the US, especially for energy imports, in a Nov. 25 statement jointly issued by Deputy Prime Minister Chrystia Freeland and Public Safety Minister Dominic LeBlanc.

"We will of course continue to discuss these issues with the incoming administration," they said in the statement.