Canadian Tariffs Will Undermine U.S. Minerals Security

Remote Visualization

As the United States races to reduce its reliance on China for minerals vital for national, economic, and energy security, tariffs with Canada may drastically undermine these efforts. Canada is the biggest source of the United States mineral imports, providing key sources of uranium, aluminum, nickel, steel copper, and niobium. To put it into perspective, in 2023, Canada accounted for $47 billion of United States mineral imports. China followed with $28.3 billion. The consequences of tariffs would be particularly profound for the defense industry, nuclear energy, and heavy manufacturing. A 25 percent tariff on Canadian mineral imports could cost U.S. off-takers an additional $11.75 billion—a figure that would increase as base metal and uranium prices recover.

Canada would likely adopt retaliatory tariffs, as they did when Trump imposed Section 232 tariffs on steel and aluminum imports from Canada in 2018 and 2020 (backing down both times). In 2023, the United States sent $30.7 billion in minerals to Canada. The retaliatory tariffs could lead Canadian firms to pay an estimated additional $7.6 billion in tariffs, encouraging them to turn to other import sources for off-take, further undermining U.S. firms.

An increase in the cost of commodities—or shortages of it—can have significant impacts on the defense, nuclear energy, and manufacturing industries at a time when the United States needs to build its capabilities.

Uranium is the feedstock for nuclear energy. The United States leads the world in nuclear energy production and has the largest number of operational nuclear reactors. However, this leadership may not last. In recent years, U.S. nuclear electricity generation has either declined or stagnated due to plant retirements and insufficient construction of new reactors. As a result, China is poised to overtake the United States in nuclear generation capacity by 2030, with 150 new reactors expected to come online between 2020 and 2035. The greatest challenge to maintaining U.S. nuclear leadership lies in securing uranium supply.

On the defense front, China is making significant investments in munitions and acquiring high-end weapons systems and equipment at a rate of five to six times faster than the United States. China is also the world’s largest shipbuilder and has a shipbuilding capacity that is roughly 230 times larger than the United States. Undermining the cost competitiveness of mineral inputs like nickel and aluminum is likely going to be a deterrent to accelerating domestic manufacturing efforts for vital defense technologies.

The impact of the tariffs would be compounded by the highly integrated nature of key supply chains. Minerals mined in the United States or Canada often move back and forth across the border as they undergo various stages of processing and manufacturing. For example, automotive parts and components can cross the borders between Canada, the United States, and Mexico up to eight times before being incorporated into the final assembly. The U.S. automotive industry employs 308,000 workers—tariffs could drastically reduce this number.

Uranium

Collaboration between the United States and Canada will be crucial for establishing a resilient, secure, and expanded uranium supply chain. Currently, uranium supply is heavily dominated by Russia and China, which together control over 50 percent of the world’s uranium enrichment capacity. This concentration poses significant risks to U.S. energy stability and national security.

Although the United States should work to increase its domestic uranium production capacity, Canada’s reserves are significantly larger—about 10 times bigger. The United States holds an estimated 59,400 tons of uranium, accounting for 1 percent of the global supply, whereas Canada possesses 588,500 tons. Additionally, Canada boasts the world’s largest deposits of high-grade uranium, with concentrations reaching up to 20 percent uranium—100 times higher than the global average.

Canada is the world’s second-largest producer and exporter of uranium, trailing only Kazakhstan. It stands as the biggest supplier of uranium to the United States, meeting approximately 25 percent of U.S. domestic demand. While Canada does not enrich its uranium, it plays a vital role by supplying essential feedstock to support the United States’ development of enrichment capabilities.

Tariffs would threaten uranium supply at a time when the United States is seeking to expand its nuclear dominance. President Trump’s executive order—Unleashing American Energy—explicitly prioritized uranium and instructed the director of the U.S. Geological Survey to consider adding uranium to its critical minerals list.

Nickel

Canada is the biggest supplier of nickel alloys essential, supplying roughly half of the United States’ total nickel needs. Nickel alloys are a critical input for the defense and automotive industries. The United States only has one operating nickel mine—Lundin’s Eagle Mine in Northern Michigan. However, given the United States does not have a single completed nickel refinery, Canada is an important ally. The entirety of nickel output from Lundin’s Eagle Mine is exported to a refinery in Sudbury, Canada, which is then sold back to U.S. firms.

Nickel is a critical material in many military applications due to its strength, corrosion resistance, and ability to form superalloys. It’s a vital component in the steel alloys used in armor and defense systems for armor plating for vehicles, ships, and personnel equipment. Nickel is an important part of jet engines—nickel-based superalloys are essential in jet engines for military aircraft due to their ability to withstand high temperatures and stress—particularly turbine blades and discs. These alloys can contain up to 50–60 percent nickel. Warships and submarines use nickel-containing stainless steel for hulls and other components to resist corrosion in water. Nickel alloys are a vital part of ammunition and weaponry. Nickel is used for missile casings and guidance systems due to their durability and high heat resistance. It’s also an important part of the energy required for defense applications—nickel is used in military-grade batteries, including nickel-cadmium and nickel-metal hydride batteries.

Tariffs on Canadian nickel could force U.S. companies in various industries, including defense and automotive, to turn to cheaper nickel from Indonesia, which is dominated by Chinese mining companies, including Tshingshan Holding Group, Zhejiang Huayou Cobalt, and Legend Holdings Corporation. Thus, tariffs could work against U.S. government efforts to reduce reliance on China.

In 2021, Canada exported $2.6 billion in nickel to the United States. This increased slightly in 2022—Canada exported $2.8 billion in nickel and $1.04 billion—or 37.4 percent—of it to the United States. A 25 percent import tariff would mean that Canadian nickel would cost U.S. firms an additional $260 million.

At Raglan, Canada’s biggest nickel mine, the total cash cost (cash operating costs plus royalties) is $416.47 per ton. At the Sorowako mine in Indonesia, the total cash cost per ton is just $243.30. If Canadian nickel imports are hit with $260 million in tariffs, it will displace Canadian nickel as U.S. manufacturing companies will inevitably turn to Indonesian nickel produced largely by Chinese companies.

There is no adequate alternative supply of nickel produced outside of China or by non-Chinese companies. Significant alternative sources have ceased operations due to their inability to compete with Chinese firms, including BHP’s operation in Australia and Glencore’s operation in New Caledonia.

Aluminum

Aluminum is used in a range of industrial, consumer, defense, and technological goods including automobiles, airplanes, and trucks, construction, packaging, electrical transmission, and chemical and food processing equipment. High-purity aluminum is used in fighter jets, ammunition, armored vehicles, and body armor.

A report from the Congressional Research Service notes that “The U.S. and Canadian aluminum industries are highly integrated, as each market is a major trading partner of the other across the aluminum value chain. In 2021, more than 75 [percent] of Canadian production went to the United States, while roughly half of U.S. downstream products were exported to Canada.” Export tariffs would disrupt the deeply integrated market—a tariff rate of 25 percent would cost the U.S. aluminum industry approximately $2.2 billion. Considering that Canada is likely to impose retaliatory tariffs as it threatened in 2018 and 2020, the competitiveness of U.S. downstream products would be heavily undermined.

The United States produces less than 2 percent of the world’s primary aluminum. The United States imported more aluminum from Canada than any other country—importing $8.9 billion of raw aluminum from Canada with the United Arab Emirates as a distant second with $1.8 billion, followed by $928 million from Russia and $589 million from Argentina.

Canada is also an important ally on the smelting side, due to its abundant supply of affordable energy, which is a key factor in aluminum smelting. Canada generates a significant portion of its electricity from low-cost hydropower. Quebec is the largest aluminum-producing region in Canada, benefiting from its vast network of hydroelectric dams. Canada’s primary aluminum smelters operate at 95 percent of industry capacity, compared to just 55 percent in the U.S. In 2023, the United States had just five primary aluminum smelters, and only two of the five worked at full capacity throughout the year. The United States has just one active smelter that outputs aluminum at military-grade quality for military aircraft, vehicles, armor, and artillery. Tariffs would threaten vital defense supply chains that utilize aluminum.

Conclusion

Tariffs and minerals are not a new issue. In May 2018, the Trump administration announced Section 232 tariffs on steel and aluminum imports from Canada at the rates of 25 percent and 10 percent, respectively. In response, Canada announced that it would impose surtaxes and similar countermeasures against up to $16.6 billion in imports of steel and aluminum imports from the United States. However, acknowledging the negative impact of these tariffs, in May 2019, the United States and Canada announced that they would lift Section 232 tariffs and Canada’s retaliatory measures. In August 2020, the Trump administration announced that it would re-impose a 10 percent tariff on Canadian aluminum imports. However, they were removed a month before Canada’s counter-tariffs went into effect.

Any tariffs with Canada on minerals would have heavy consequences on defense, nuclear energy, and heavy manufacturing. Canada is a critical ally in the United States’ efforts to reduce reliance on China for critical minerals—both for feedstock and midstream processing.

Gracelin Baskaran is the director of the Critical Minerals Security Program at the Center for Strategic and International Studies in Washington, D.C.