On Tuesday, President Trump declared plans to increase copper tariffs by as much as 50%. This announcement led to a sharp 17% surge in copper futures, marking the most significant single-day increase since 1988.
Some investors see this as an opportunity to profit while others fear financial losses. Those benefiting from the tariffs are generally supportive of Trump, viewing it as a way to protect American industries, while critics argue it reveals a lack of financial understanding.
So, what actually happens with a 50% copper tariff? The consensus seems to be that it won’t lead to any positive outcomes.
The question arises: are customs duties beneficial or detrimental?
The answer is a mix of both. Tariffs can be effective in achieving their objectives, but when they miss the mark, they’re just another unnecessary tax.
Hamilton’s Warning
Back in 1791, Alexander Hamilton advocated for American tariffs in his “Manufacturing Report.” His intentions were pragmatic, not ideological. The fledgling nation had to be self-sufficient, especially in vital areas like firearms and steel.
During the Revolutionary War, the French supplied over 80,000 muskets. Without that support, victory would have been improbable. Hamilton recognized that manufacturing wasn’t merely a sector; it was a matter of national security.
Moreover, it was the pathway to prosperity for ordinary Americans.
Hamilton noted how Britain exploited mercantilism, enriching itself through its colonies. By the 1770s, the British manufacturing sector was thriving, employing one in five British citizens, largely fueled by demand from the colonies.
From 1720 to 1770, the British trade surplus with the colonies skyrocketed from 67,000 to 739,000 pounds. This heavy dependency on British goods eventually fueled the revolutionary spirit.
Hamilton aimed to change this narrative.
For a time, America succeeded by following his vision.
For over a century, protective tariffs and industrial development created what is often referred to as the “American System.” It was, in a sense, a more dignified adaptation of British mercantilism.
Throughout the 19th century, the U.S. maintained one of the highest global average tariff rates. Such protection nurtured the industrial powerhouse that established America’s status as the world’s foremost economy.
Then, things shifted.
After World War II, many of those protections fell away. By 1973, much of the American manufacturing framework had been dismantled. In 2001 alone, more than 60,000 factories and 5 million manufacturing jobs vanished.
So, why do customs exist today?
Better to be a Country Than a Colony
Trump’s instincts are mostly correct. Financial self-sufficiency is crucial. Prioritizing value-added production over mere resource extraction makes sense.
In a nutshell, it’s preferable to be a self-reliant country rather than a dependent colony.
Tariffs can help achieve that, but they need to be well-designed. They should encourage industry growth rather than hinder it.
So, again, what does a 50% copper tariff achieve? Spoiler: not much good.
Missing the Point
In 2024, the U.S. produced around 1.1 million tons of copper but consumed nearly 2 million tons. This means that over 40% of copper use relies on imports.
A 50% tariff will likely drive up copper prices universally, negatively impacting American manufacturers, particularly in electronics and high-tech sectors.
When tariffs are applied to finished goods, domestic producers can ramp up production since most manufacturers typically operate at only about 60% capacity. This allows room for growth, and the more they produce, the cheaper individual units become due to economies of scale.
But the same logic doesn’t apply to copper mining.
Mining operations require considerable time and investment to get started, and they don’t easily scale. Adding to the complexity are rigid environmental regulations that make domestic copper supply largely inelastic.
This leads to rising prices without a corresponding increase in supply—a problematic combination.
Unexpected Consequences
Interestingly, Trump’s higher copper tariffs could inadvertently benefit China.
If demand for imported copper in the U.S. decreases, global prices could drop, much to the delight of Wall Street traders. This would lower manufacturing costs in China.
This is detrimental to American interests but advantageous for them.
Since raw materials account for a significant part of manufacturing costs, this twist isn’t ideal for U.S. competitiveness. Increasing copper prices is not the way to go. Instead, focusing on expanding domestic production is crucial.
More Effective Strategies
Copper is a crucial national security issue, but imposing tariffs isn’t the most effective solution.
Streamlining mining and recycling regulations would be more beneficial. Instead of shipping scrap overseas, we could meet a significant portion of our copper needs domestically.
Currently, around 40% of our copper stems from recycling, yet we still export potentially valuable materials, only to buy back the copper later at a markup. It makes little sense.
Let’s empower American companies to mine and recycle locally. Prices will decrease, and supply will increase.
No tariffs are necessary.
Unnecessary Tariffs
Considering all this, Trump’s copper tariffs seem more like a tax rather than a well-planned strategy. They resemble symbolic duties without substantial economic benefit.
While Trump’s instincts are on track, they require refinement. If the aim is to rejuvenate the manufacturing sector and secure the supply chain, he must adopt targeted tariffs that genuinely create jobs and bolster GDP, rather than garner immediate political gains.
Hamilton understood this well. It’s time to regain focus and not lose sight of the bigger picture.
