How Manufacturers Can Navigate Proposed US Tariffs on Aluminum Products

By Vengat Narayanasamy

Tariffs and disputes continue to bring turbulence to global trade. Now, the aluminum industry faces new tariffs.

The United States government has proposed tariffs on aluminum products under sections 301 and 232 of two trade laws.

Section 301 of the Trade Act of 1974 grants the U.S. Trade Representative (USTR) authority to act against unfair trade practices by foreign governments while Section 232 of the Trade Expansion Act of 1962 allows the U.S. President to impose tariffs on imports deemed to threaten national security.

The U.S. has invoked these provisions in recent years against perceived trade imbalances and national security concerns.

Proposed Aluminum Tariffs: Pros and Cons

Under the proposed 301/232 tariffs, the U.S. government is considering imposing additional duties on a range of aluminum products imported into the country. These tariffs are ostensibly aimed at addressing concerns related to unfair trade practices, overcapacity in global aluminum production, and safeguarding domestic aluminum industries.

Domestic aluminum producers stand to benefit from the proposed tariffs as they could potentially reduce competition from cheaper imported aluminum products.

By levying tariffs on aluminum imports, the U.S. government aims to create a more level playing field for domestic producers, thereby safeguarding jobs and promoting the growth of the domestic aluminum industry.

However, the imposition of tariffs on aluminum products could have adverse consequences for downstream industries that rely on aluminum as a key input.

Industries such as automotive, aerospace, construction, and packaging may face higher production costs because of higher aluminum prices.

Ultimately, these higher costs could be passed on to consumers of various goods and services.

The imposition of tariffs on aluminum products is also likely to strain trade relations with key trading partners, particularly those heavily involved in aluminum production and export.

Countries affected by the tariffs may retaliate with their own trade barriers, leading to a potential escalation of trade tensions and a broader impact on global trade dynamics.

Increased tariffs on aluminum imports could also result in higher input costs for manufacturers, affecting their competitiveness in domestic and international markets.

Small and medium-sized enterprises within the industrial manufacturing sector may face challenges in absorbing these additional costs.

Moreover, disruptions in the global supply chain because retaliatory measures by trading partners could necessitate manufacturers to make strategic adjustments in sourcing and production processes to mitigate risks and maintain operational efficiency.

Thus, while the tariffs may aim to protect domestic industries, the manufacturing sector must navigate the complex landscape of trade policy to sustain competitiveness and ensure continued growth.

What Should Companies Do to Reduce the Impact of the Tariffs?

Here are some key actions they can consider:

Diversification of Supply Chain:

To reduce reliance on imported aluminum subject to tariffs, companies can diversify their supply chain by sourcing aluminum from multiple suppliers, including domestic producers and alternative international markets not affected by tariffs. This strategy helps mitigate the risk of supply disruptions and minimizes the impact of tariff-induced price fluctuations.

Product and Process Optimization:

Companies can optimize their product designs and manufacturing processes to reduce the reliance on aluminum or minimize the amount of aluminum required per unit. This could involve exploring alternative materials, redesigning products for lightweighting, or adopting more efficient manufacturing techniques that reduce material waste and overall costs.

Strategic Inventory Management:

Implementing strategic inventory management practices can help companies buffer against short-term disruptions caused by tariff-induced supply chain challenges . Maintaining adequate inventory levels of essential aluminum products allows companies to mitigate the impact of potential delays in deliveries or price volatility, providing greater flexibility and stability in production operations.

Negotiation and Contract Renegotiation:

Companies can engage in negotiations with suppliers to explore potential cost-saving measures, such as renegotiating pricing terms, adjusting contract volumes, or seeking alternative payment arrangements. Leveraging long-term relationships and demonstrating flexibility in negotiations can help mitigate the impact of tariff-related cost increases on procurement expenses.

Investment in Domestic Production:

In response to the tariffs, some companies may consider investing in domestic aluminum production facilities or forging strategic partnerships with domestic suppliers. By bolstering domestic production capabilities, companies can enhance supply chain resilience , reduce exposure to tariff risks, and demonstrate a commitment to supporting local economies and industries.

Tariff Exemption Applications:

Companies affected by the tariffs can explore options for obtaining exemptions or exclusions from the tariff requirements through the appropriate regulatory channels. This may involve submitting applications to the relevant government agencies, providing justification for why specific products should be exempted based on factors such as national security considerations or lack of domestic alternatives.

Monitoring and Compliance Management:

Establishing robust monitoring and compliance management systems is essential for ensuring ongoing adherence to tariff regulations and effectively managing associated risks. By staying informed about changes in tariff policies, monitoring developments in trade negotiations, and maintaining compliance with applicable laws and regulations, companies can address potential compliance challenges and mitigate associated penalties or liabilities.

Engagement in Advocacy and Trade Associations:

Companies can participate in industry advocacy efforts and collaborate with trade associations to collectively advocate for policies that support the interests of the manufacturing sector. By engaging with policymakers, providing input on the potential impacts of tariffs, and advocating for trade policies that promote fair competition and open markets, companies can influence decision-making processes and shape regulatory outcomes in ways that mitigate adverse effects on their businesses.

By proactively implementing these mitigation actions, companies can effectively navigate the challenges posed by proposed 301/232 tariffs on aluminum products amid a dynamic and uncertain trade environment.

Vengat Narayanasamy is vice president of consulting at GEP.