Russell: Trump's tariffs on copper won't boost US production, but will increase costs

The proposed 50% tariff on imported copper may be the most embarrassing own goal in the ongoing trade war between the United States and the rest of world.

Trump announced Wednesday that the tariff would take effect on August 1.

Trump's statement was quite definitive, but there are still many questions. For example, what products would be included in a definition of copper? And, is there any scope for exemptions, or for lower rates, for major US suppliers like Chile and Canada?

Even if concessions are made prior to the implementation date the final result will likely be that imports of copper are hit with a much higher tariff than before Trump's return in power.

The tariffs on Copper are similar to Trump's other tariffs. They aim to encourage domestic mining and smelting. This industrial metal is used to make electric vehicles, military equipment, semiconductors, and many consumer goods.

Trump's economic vision may be naive, but the reality is that copper mining and processing will face a significant challenge in the short- and long-term.

In 2024, the United States imported 810,000 metric tonnes of refined metal.

Copper miners like Freeport McMoRan or Rio Tinto may be able to run their mines harder in order to increase output. However, this would only result in a temporary boost and is unlikely to be sustainable.

Importing and refining copper ore is unlikely as it will take time and money for idle smelter capacities to be re-commissioned. The only candidate that could work would be the Asarco plant owned by Grupo Mexico in Hayden Arizona, which has remained mothballed since more than four year.

Rio Resolution Copper, the largest mine in Arizona, has been delayed due to legal challenges brought by the native Apache people.

The Supreme Court's ruling in favor of Rio and Resolution BHP Group in May would seem to open the door for the mine development. However, even if the process is accelerated, it will take many years before the first production occurs.

Imports Needed

The United States will be dependent on imports of copper, which means that metal buyers have a limited choice.

The tariff can be paid or the copper consumption reduced by reducing production.

The cost of copper will increase to the same level as imported metal, which will affect car manufacturers, home builders, and electronic manufacturers.

The market power of companies will determine whether costs are passed onto consumers or absorbed by the company. However, the impact on inflation and employment is likely to increase if the costs are passed on to consumers or to decrease if the company does as Trump suggested and "eats the tariffs."

Tariffs have a direct impact on copper prices and movements in all parts of the world, and this will be true both for the short-term and the long-term.

Analysts at Macquarie estimate that the United States imported 881,000 tonnes of copper in the first six months of this year, compared with a requirement of approximately 441,000 tons.

The stockpiled metal, which is cheaper, will be used up as soon as the tariff is implemented.

This will likely bring down global copper prices, reversing the trend of increasing prices since Trump returned to the White House.

Benchmark London Copper contracts closed at $9,630.50 per ton on a Wednesday, an increase of almost 10% from the end last year.

The U.S. copper contract rose from 13% to 26% over its London equivalent after Trump's announcement.

This 26% premium is well below the 50% tariff. It may be a sign of market uncertainty as to which types of copper products are subject to tariffs, or if there's a risk that some countries will receive a lower tariff.

Once the final form of copper tariff is decided and the stockpile has been used up, the U.S. price will likely rise in line with the tariff.

These are the views of a columnist, who is also an author.

You like this column? Open Interest (ROI) is your new essential source of global financial commentary. ROI provides data-driven, thought-provoking analysis on everything from soybeans to swap rates. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, X.

(source: Reuters)