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Uncle Sam has a copper problem. In very round numbers, the US produces 1mn tonnes of the red metal, and consumes 2mn. The deficit is filled from overseas, creating a potential geopolitical vulnerability. Yet even within the US, there’s ample copper to go round, for those brave, rich and patient enough to extract it — especially if cheaper imports suddenly lose their allure. A case, then, for tariffs.
That, at least, is the logic from the White House. President Donald Trump has pledged to slap levies on imports of copper, having already identified the metal as a critical input for American prosperity. That drove the price of copper futures on US markets up by almost a fifth on Tuesday. Of course, a mooted blanket 50 per cent tariff is unlikely to be the final result. Now come the negotiations and capitulations.
There is a legitimate problem to be solved. Copper, while abundant, is increasingly expensive and hard to extract. For years, it has been apparent that a supply crunch looms, with natural growth in demand amplified by the transition to green energy and “electrification”. For example, an electric vehicle uses 2.5 times as much copper as a petrol guzzler, estimates S&P Global.
Now, there are other pressures too. Artificial intelligence, with its reliance on data centres and thirst for power, has created a new consumer of copper. Growing defence budgets add further pressures. But while mining is becoming a matter of urgency, new ones can take decades and billions of dollars. Resolution, a site owned by Rio Tinto and BHP Billiton, could be the largest copper mine in the US, but has been snared in legal disputes for years.
Tariffs could — in theory — incentivise new production, by pushing up the price. BlackRock has estimated that $12,000 per tonne is the price at which digging starts to look financially viable, and after Trump said he would be “doing copper”, that’s roughly where the US price sits. But trade levies are a blunt tool. And they have a fatal flaw: miners plan their investment over decades, whereas tariffs can vanish with the stroke of a pen.
Besides, getting copper out of the ground is only the first problem. The second is making it usable. The US barely smelts copper these days, since it’s typically an expensive, dirty and unpopular process. That activity has shifted wholesale to China, which now smelts almost half of the world’s supply, compared with 3 per cent in the US, according to the US Geological Survey. Some American smelters have been repurposed as data centres.
That doesn’t mean “doing copper” is futile. Subsidies have their place. And while miners need years of certainty to break ground, technologists aren’t such sticklers. Companies like Freeport-McMoran, and BHP-backed start-up Ceibo, are tinkering with new ways to extract and refine more copper from existing mines. Higher prices may give them a fillip. Tariffs are a bad way to solve the supply-demand problem, but a decent way to focus minds.