Trump cuts aluminum tariffs to 25% for companies building US smelters

President Trump signed a proclamation July 20 cutting aluminum import tariffs to about 25% from 50% for companies that build, expand or renovate US smelters, offering a tariff discount in exchange for domestic investment.

"The US doesn't have enough primary aluminum capacity to meet demand and relies heavily on imports, especially from Canada and the Middle East," according to a White House statement announcing the program.

The US now operates four aluminum smelters, down from 23 in 2000, and the last new facility was built more than four decades ago. About half of all aluminum consumed in the US comes from Canada, where hydroelectric power gives smelters a structural cost advantage. The 50% tariff, imposed in June 2025, drove the US Midwest premium — the extra cost to deliver metal to that region — up nearly 100%, with additional pressure from supply disruptions tied to the Iran conflict.

The policy aims to address a chronic supply gap that has left US manufacturers of automobiles, beverage cans and appliances paying the highest raw material costs globally. Eligible projects must begin construction by Jan. 20, 2029. LME aluminum settled at $3,140 a metric ton before the announcement and edged up 0.7% to $3,160.76 after.

A 40-Year Decline in Domestic Capacity

The US aluminum industry's decline reflects a fundamental power-cost problem. Smelting is energy-intensive, and Canadian producers using hydroelectricity operate at a significant cost advantage over any potential US competitor. The four remaining US smelters — down from 23 at the turn of the century — cannot meet domestic demand, forcing manufacturers to import roughly half their aluminum from Canada alone.

The previous 50% tariff, intended to boost domestic production, produced only sporadic results. Instead, it pushed the US Midwest premium to near-record levels, adding hundreds of dollars per ton to the cost of aluminum for US manufacturers. Those costs have cascaded through supply chains: appliance makers, can producers and auto manufacturers have shifted to just-in-time buying patterns, holding only enough inventory for immediate production needs to avoid locking in elevated prices.

What the Incentive Program Changes

Under the new rules, companies that receive government approval for smelter construction, expansion or renovation projects — with a deadline to begin work by Jan. 20, 2029 — will pay about 25% on imported aluminum instead of 50%. The discount applies to metal shipped into the US after the project is approved.

The program represents a tactical shift from blanket tariffs to targeted incentives, acknowledging that punitive duties alone cannot rebuild an industry that requires billions of dollars in capital investment and years of construction. Whether the 25% discount is sufficient to overcome the power-cost disadvantage that has kept new smelters out of the US for four decades remains an open question.

LME aluminum prices have climbed this year as the tariff regime and supply shocks tightened the market. The London Metal Exchange benchmark settled 0.3% lower at $3,140 a ton before the White House announcement, then recovered to $3,160.76. The US Midwest premium, which has nearly doubled since the 50% tariff took effect, may face downward pressure if the incentive program attracts meaningful investment — though any new capacity is years away from production.

This article is for informational purposes only and does not constitute investment advice.