The mainstream news media has already figured out that the Trump administration's proposed tariffs on imported copper of 50 percent would dramatically hike copper prices for American industry and raise the price of products containing copper for consumers, which is just about everything electrical. The reason is simple; The United States is a net importer of 45 percent of its copper needs according the U.S. Geological Survey.
All right, you may say, so there will be some short-term pain until the United States develops enough new copper mining and refining capacity to be self-sufficient. First, it's not easy to build such capacity. New mines can take years to build, assuming you already know where the copper is. As for copper refining, few people want such facilities near them so half the challenge is quelling the opposition to any new refining operations. They also take years to build.
Now nobody is going to spend money building new copper mines and refining facilities unless there is a guarantee that the price of copper will stay sufficiently elevated to justify such investments. Even if the proposed tariffs on imported copper were to go into effect, there can be no guarantee that they would be maintained for the couple of decades that investors need for such long-term investments to pay off.
I suppose it's possible that all these new investments would be profitable even if the tariffs are later rescinded. But if the mines and refineries are built on the premise of long-term tariffs, high prices for copper will be part of the profitability analysis.
It's certainly possible to construe the proposed copper tariffs as a bargaining position, that the Trump administration will never actually impose them or that they will be much, much lower. But one thing the administration has proven to be regarding tariffs is dramatic. While the general sentiment has been crystallized into the acronym TACO, meaning "Trump always chickens out," he may not this time.
In any case, even if the United States wants to become more self-sufficient in the production key minerals, as I've explained previously, this would be very difficult, either because the country lacks the in-ground resources or because what resources it does have would be too expensive to develop. Attempting to do so would likely require either 1) substantial long-term tariffs that might break the back of the domestic industries that use these minerals for their products or 2) huge government subsidies that might prove unpopular with the public.
P. S. Let the subsidies begin! As I was finishing this piece, the U.S. Department of Defense agreed to become a 15 percent shareholder of MP Materials, a U.S.-based rare earth element miner and processor. The DOD guaranteed that for 10 years it would purchase all the high-strength magnets and all the neodymium-praseodymium oxide minerals produced by new facilities financed by the investment at prices that insure profitable operation. This demonstrates how critical the DOD believes these products are for defense purposes. Of course, the arrangement doesn't do anything for American industries that are also in need of domestic sources of these magnets and minerals because the Chinese government—which controls most of the rare earth market—has severely restricted exports of these minerals and related products such as high-strength magnets.
Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.
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