(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Andy Home

LONDON, March 12 (Reuters) - First some good news for

U.S. aluminium buyers. President Donald Trump has backed off

from his threat to hit imports of Canadian metal with a huge 50%

tariff.

Now for the bad news. As of today they will be paying a 25%

import tariff, not just for Canadian metal but for all aluminium

products from all countries.

Market pricing has already shifted to reflect the Trump

administration's doubling-down on tariffs as a way of reviving

domestic smelting capacity.

The CME Midwest premium, reflecting the cost of

unwrought aluminium delivered to a U.S. fabricator over and

above the international London Metal Exchange basis price, is

trading at record highs.

The high premium will flow down the aluminium product chain

until it hits the last-stage user, whether it be Ford Motor ( F )

, Lockheed Martin ( LMT ) or one of the country's many

independent brewers.

That's how tariffs have worked to date and things won't

change while the United States remains so dependent on imports.

TARIFF HANGOVER

Trump's original 2018 tariffs on aluminium were set at 10%

and within a year the Beer Institute, which represents the

nearly 8,000 brewers in the United States, estimated they had

already cost the industry an extra $250 million.

A report by consultancy Harbor Aluminum found that $50

million had gone to the U.S. Treasury, $27 million to domestic

smelters and $173 million to the fabricators who convert metal

to aluminium sheet for beer cans.

What really irked the Beer Institute was that the import

tariff was being passed through even though U.S. cansheet

typically contains around 70% recycled metal sourced

domestically.

But that's how tariffs tend to work.

Just ask European aluminium buyers. The European Union also

imposes import tariffs ranging from 3% on primary aluminium to

6% on some alloys.

Researchers from the LUISS University of Rome studied the

impact on consumers and in a 2019 paper found that even though

duty-exempt metal accounted for around half of all European

Union imports, everyone ended up paying 6% anyway.

Producers are incentivised to "align their prices to the

highest possible level - that is, the duty-paid price," the

researchers wrote.

The Beer Institute's follow-on research in 2022 confirmed

this harsh economic reality, finding that even with exemptions

for key suppliers such as Canada, beer makers were still paying

the full import tariff for their can metal. The cost at that

stage had risen to $1.4 billion.

IMPORT DEPENDENCY

Harbor Aluminum's finding that the main beneficiaries of

tariffs to date have been first-stage processors reflects the

imbalanced nature of the domestic U.S. supply chain.

The country has a large base of semi-manufactured product

makers but only four operating primary metal smelters to supply

them.

The aluminium sector directly employs more than 164,000

workers but only 4,000 are engaged in upstream metal production,

according to the U.S. Aluminum Association.

Those four smelters produced 670,000 metric tons of metal in

2024, compared with U.S. consumption of around 4.9 million tons.

Imports of primary metal totaled almost 4.0 million tons, of

which 70% came from Canadian smelters.

It's hard to see how that dynamic is going to change any

time soon. Even if all the currently idled smelting capacity of

around one million tons per year returned to production - a big

"if" given the age and cost structure of the four mothballed

plants - it would still leave a big import dependency gap.

Century Aluminum's ( CENX ) proposed new smelter is years

away and the company hasn't yet found a source of competitively

priced power to feed the plant's electrolysis process.

There is much more potential to lift domestic production

from domestic scrap but as long as even one ton of extra

imported metal is needed to meet domestic consumption, you can

be sure that the tariffs will continue to determine the end

price for American buyers.

TRADING UNCERTAINTY

Moreover, as the markets learned on Tuesday, Trump is quite

capable of raising tariffs on a presidential whim.

The changeable tariff rhetoric is causing volatility in the

CME U.S. premium, which briefly jumped to almost $1,000 per ton

over the LME price on the threat of 50% tariffs on Canadian

metal before retreating on news of the truce with Ontario

Premier Doug Ford.

But it may also be about to generate a major realignment of

global trading patterns.

Previous spikes in the U.S. aluminium premium have pulled

European premiums higher. This is logical given that Europe,

which is also dependent on primary metal imports, must compete

for spare units in the global market-place.

Not this time, though. Even as the U.S. premium has surged

to all-time highs, European premiums have been falling.

This is counter-intuitive, particularly since European

consumers are set to lose Russian supply over the next year as

part of the bloc's latest sanctions package. If anything, the

European premium should be even more sensitive to what is

happening in the North American market.

The divergence suggests that some suppliers to the United

States are already looking to avoid Trump's tariff tantrums by

re-directing sales to Europe.

If so, it will be good news for European beer drinkers, who

may raise an aluminium can to their less fortunate American

counterparts.

(Editing by Jason Neely)