Wesley Hughes | US tariffs, trade, and opportunities for Jamaica

The United States (US) government’s decision to impose a 25 per cent tariff on imported aluminium is a classic case of well-intended but potentially flawed economic policymaking. While the goal of reviving domestic aluminium smelting is attractive from a national security and political perspective, most economists agree that it carries great risks. The tariff is more likely to hurt aluminium-using industries, raise costs for consumers, and invite retaliation from trade partners.

Whatever the impact of the tariffs on the US aluminium industry they could potentially be positive for Jamaica. As a key supplier of alumina, the feedstock for aluminium production, Jamaica could benefit from shifts in global trade flows.

WHY TARIFF WON’T REVIVE US SMELTING

Aluminium production is a highly energy-intensive process. US smelters pay far more for electricity than competitors in China, Canada, the Middle East, and Russia. With energy costs making up 30–40 per cent of production expenses, US smelters are structurally uncompetitive. New smelters would require very significant long-term energy-related subsidies to be built and operate.

Beyond electricity, alumina (25–30 per cent of costs), labour, and carbon anodes also add to the equation. The US lacks domestic bauxite reserves and relies on imported alumina, primarily from Jamaica, Brazil, and Australia. Even with tariffs, US smelters will still struggle to compete with producers in lower-cost regions.

The numbers tell the story. The US once produced 5 million metric tons of primary aluminium annually. Today, output hovers just below 1 million metric tons – less than 2 per cent of global production. The tariff won’t change this reality. At best, it may prompt the reopening of one or two idled smelters, but not a true revival. Century Aluminum (43 per cent owned by Swiss owned Glencore) in 2024 was selected by the US Department of Energy to get US$500 million in financing to build the US first aluminium smelter in 45 years. This was under the Biden administration Inflation Reduction Act to build new green industrial plants to accelerate decarbonisation and will take years to complete.

Century Aluminum owns 55 per cent of the Jamalco alumina plant in Clarendon. The GOJ owns the remaining 45 per cent since the 1980s.

An important question in relation to the US tariffs is: who will pay the price? If aluminium smelting in the US is unlikely to benefit, who loses? The answer: the vast aluminium-consuming industries, which employ millions of workers and contribute far more to the US economy than primary smelting ever did.

These sectors include automobiles (Ford, GM, Tesla); Aerospace (Boeing, Lockheed Martin); construction (window frames, siding, wiring); beverage packaging (Coco-Cola, PepsiCo).

These sectors will all face higher input costs – costs that will be passed on to consumers. Some companies may even be forced to outsource production outside of the US.

WHY IS THE US IMPOSING TARIFFS?

Many arguments have been proffered for the tariffs: to correct trade imbalance; building leverage for negotiations; rebuilding the US industrial base and American jobs; national security; and collection revenue. In a best case scenario, the tariff on aluminium is expected to generate $4 billion in additional government revenue based on US aluminium import volumes. But this ignores offsetting economic losses in other sectors.

JAMAICA’S UNEXPECTED OPPORTUNITY

While The Sunday Gleaner editorial of March 16, correctly drew attention to potential a fall out, the Trump tariffs could present an unexpected opportunity for Jamaica’s bauxite/alumina industry. The US aluminium industry, despite its weakness in smelting, still needs alumina. And Jamaica is a longstanding supplier, with active refineries and historical trade ties to the US

As The Gleaner pointed out, the prospects for the China/JISCo owned Alpart refinery is quite weak within the context of the US/China geopolitical rivalry. China may well treat its investment in Alpart to date as sunk costs and seek to sell or mothball the refinery indefinitely. This is not in Jamaica’s interest. However, the plant needs substantial investment for upgrading, particularly to reduce its very high energy costs.

Alpart is the only high temperature alumina refinery in the country making it highly suitable for processing the mostly lower quality monohydrate reserves that now remain. Most of the bauxite mining on the island over the last 75 years took out the higher quality trihydrate bauxite which was easier and cheaper to process.

An upgraded, energy-efficient high-temperature Alpart refinery would be ideal for Jamaica going forward. However, this is not likely to happen without direct Jamaica government intervention to force movement to either get JISCo to invest and reopen, or structure some alternative arrangement. If by some miracle the US can pull off a resurgence of smelting, there will be a need for additional alumina, and Jamaica would be ideally located to supply this demand.

In 1988, former Prime Minister Edward Seaga took the dramatic decision to acquire a 50 per cent ownership position in the Alcoa Clarendon refinery (renamed Jamalco) and forced a reopening. This after its closure was announced. This is the kind of bold and decisive action that may be needed to kickstart operations at Alpart. But for Jamaica to fully capitalise on the current complex global situation, policymakers must have a clear overall strategy to restart idle capacity, attract new investment, and reduce energy costs.

The US tariffs will create winners and losers. In this case, the winners won’t be US smelters but instead a few protected companies and the US Treasury at the expense of manufacturers and consumers.

For Jamaica, however, this could be a rare opportunity to strengthen its position in the global alumina market. If policymakers move strategically, they can turn Washington’s flawed trade policy into a win for the Caribbean.

Wesley Hughes is the former financial secretary and director-general of the Planning Institute of Jamaica. He is an economist with wide experience in strategic planning, public policy, and the global aluminium industry. Send feedback to columns@gleanerjm.com