The U.S. aluminum tariff wall is beginning to crumble.

The United States has imposed additional tariffs on imported aluminum and steel products on national security grounds for nearly a year. If the aim of these “Section 232” tariffs was to boost domestic production, the Trump administration could claim some success. Thanks to the resumption of idle capacity, U.S. primary aluminum output has begun to rise sharply—though this trend cannot be attributed solely to the 10% import tariff. However, if the objective also included addressing the growing share of imports—particularly those from Chinese aluminum producers—the maximum effectiveness of these tariff measures may already have been reached.

As the number of exemptions granted for specific products has increased, more cracks have appeared in the aluminum tariff wall. China has been the primary beneficiary of the exemption process, with the number of approvals it has received remaining close to its 2017 levels. Its situation is far better than that of Canada, a long-standing U.S. ally and a key supplier of aluminum to its neighbor. Canada has secured virtually no tariff exemptions, which is why Canadian Foreign Minister Chrystia Freeland has been vigorously lobbying for a blanket exemption. This outcome reflects an unintended consequence of the law of unintended consequences, while also highlighting that, for a country as heavily reliant on imports as the United States, tariffs can have only limited effectiveness.

Output has increased. A January 2018 report by the U.S. Department of Commerce recommended taking action on aluminum imports, with the goal of raising domestic capacity utilization from 39% in 2017 to 80%. According to data from the Aluminum Association, by the end of last year, U.S. primary aluminum production stood at an annualized rate of 1.15 million metric tons, equivalent to 63% of domestic capacity. With Century Aluminum (CENX.O) restarting its third previously idled production line at the Hawesville smelter in Kentucky, U.S. primary aluminum output is expected to rise further. The smelter’s first line was brought back online in the third quarter of last year, and the second followed at year-end. Century Aluminum is one of three companies actively reactivating U.S. production capacity. Magnitude 7 Metals’ New Madrid smelter in Missouri has also resumed operations. While import tariffs have certainly helped, the company had already begun plans to restart the facility when it acquired it in 2016. Similarly, Alcoa (AA.N) announced in late 2017—before the U.S. Department of Commerce submitted its aforementioned report—that it would revive idle capacity at its Warrick smelter in Indiana; Alcoa later emphasized that this decision was driven by plant‑specific economic factors rather than tariff considerations. How much additional idle capacity will be brought back online remains to be seen, as the economics of aluminum production remain challenging. Alcoa reported an operating loss in its aluminum segment for the fourth quarter of 2018, and aluminum prices have since fallen further. On Monday, LME aluminum settled at $1,860 per tonne, failing to rebound significantly from the year‑low of $1,785.50 reached in January.

China’s exports—primarily semi‑finished aluminum products—soared 21% last year to 5.8 million tonnes. In January, Chinese shipments rose further to 552,000 tonnes, with the growth rate accelerating to 26%. Exemption volumes are climbing. For years, China has been the leading source of U.S. imports of aluminum “semi‑finished goods.” Reports suggest that Chinese exporters have shifted more shipments to other Asian markets while cutting back on U.S. sales, largely due to anti‑dumping duties on certain products and strained U.S.–China trade relations. However, the high tariff barrier erected under Section 232 is rapidly crumbling. Research from George Mason University’s Mercatus Center shows that, as of December 18, the U.S. Department of Commerce had approved 108 exemption requests for Chinese‑made aluminum products. Such exemptions are granted when applicants can demonstrate that a specific product lacks domestic supply sources. The total tonnage covered by these exemptions amounts to 550,000 tonnes, compared with actual U.S. imports from China in 2017 of 641,000 tonnes. Currently, another 590 exemption applications remain pending. By contrast, Canada has secured only three exemptions, totaling less than 5,000 tonnes, though it still had 935 pending applications as of mid‑December. While comparing the fates of the United States’ top two aluminum suppliers may be somewhat misleading, the contrast remains instructive. Canada has long been the primary supplier of primary aluminum to the U.S., even as it also exports semi‑finished products. It is hard to argue that such primary aluminum could not be sourced domestically. In 2017, Russia and the United Arab Emirates were the second and third largest U.S. suppliers of primary aluminum, yet neither received any exemptions. China does not export this type of primary aluminum; instead, it ships a broad range of “semi‑finished” products, many of which clearly cannot be procured domestically. Unsurprisingly, the exemption regime treats finished goods more favorably than primary aluminum. Yet, given the U.S.’s continued heavy reliance on imports, this highlights the limitations of tariffs—particularly those on primary aluminum. According to the Aluminum Association, even if all idle domestic production capacity were brought back online, it would still meet less than half of U.S. demand for primary aluminum. Peak Effect As of December 18, the Mercatus Center reports that just over 6,200 exemption requests for aluminum tariffs remained pending. Meanwhile, the U.S. Department of Commerce is processing 30,000 exemption applications for steel tariffs. Each of these represents another potential loophole in President Trump’s tariff wall. To be sure, domestic U.S. production is rebounding, but with prices falling, a 10% tariff provides only limited relief to American smelters—facilities that were originally sidelined precisely because their cost structures were higher. From the government’s national security perspective, the peak effectiveness of these tariffs, even if it has already passed, is now very close. So what comes next? Aluminum industry associations around the world are calling for renewed attention to China’s massive production and export capacity. The Organization for Economic Cooperation and Development (OECD) has provided a basis for such concerns. Its latest report states that “market distortions appear to be a very real concern in the aluminum sector,” specifically naming China and the Gulf Cooperation Council countries. (Report title: Measuring Distortions in International Markets: The Aluminum Value Chain, January 2019.) Perhaps the U.S. administration is acting alone, but aluminum remains a key issue in U.S.–China trade negotiations…