At least in the short term, the large new tariff on U.S. copper imports will hurt U.S. consumers without reviving domestic U.S. production or harming Canadian producers, according to Desjardins Group.
In a new report, economists at Desjardins examine the expected fallout from the recently imposed 50% tariff on U.S. imports of copper products — intended to revive U.S. copper production, which has dropped significantly over the past 30 years.
“While some may consider the desire to reshore mining commendable, this tariff is likely to fragment the global market, leading to higher prices in the United States and lower prices elsewhere,” the report said.
Indeed, the report noted the protectionist measure will likely hurt U.S. consumers in the short term, as U.S. importers face higher costs that will also impact production lines, especially for electronics, electric vehicles and construction — and likely drive up inflation.
At the same time, the tariffs will do little to revive domestic production, as the idea of opening new copper mines in the U.S. faces a variety of obstacles, including regulatory hurdles, local opposition and production cost challenges. U.S. copper deposits are much lower quality than the global supply, it noted.
“This forces producers to mobilize more resources to extract the same amount of copper, which increases costs and undermines competitiveness,” the report said. “On top of that, there’s a shortage of skilled labour, and energy costs are rising.”
Ultimately, it will take years, if not a decade, “to substantially ramp up U.S. mining production and refining,” the report said. “Until then, American businesses and, ultimately, consumers will pay the price.”
Canadian miners are largely unaffected by the tariff, as the primary export market for Canadian copper ore is Asia.
Only 6.6% of Canadian copper exports will be subject to the new U.S. tariff, the report said — although it acknowledged Canadian producers could suffer indirectly from weaker U.S. demand, as many U.S. companies have built up their inventories ahead of the tariffs.
“While Canada is largely unaffected by the new tariff, lower U.S. demand will drag down our exports,” it said. “However, the decline will likely be very slight, as copper shipments to the U.S. account for just 0.8% of Canada’s total exports.”