After threatening to use a sledge-hammer, the US administration has narrowed its sights on those it regards as the real targets
US 'shock and awe' tariffs on metals appear less than awesome
The rhetoric of trade war is escalating with each passing day.
US President Donald Trump threatens another $100 billion of tariffs on Chinese goods. China warns that it will fight back "at any cost".
This storm started with steel and aluminium, with tariffs coming into effect on March 23, but has grown in intensity to encompass a lengthening list of goods and products.
Rising trade tensions have weighed on industrial metal prices, unsurprisingly given their exposure to global growth prospects, but have caused the US aluminium premium market to whipsaw higher.
Which is ironic since prior to last week the premium was falling as the aluminium market realised that in its case the US administration's bark has proved considerably worse than its bite.
The CME's Midwest aluminium premium contract has provided an accurate market mirror on Mr Trump's seemingly chaotic approach to tariffs.
Based on the supply and logistics drivers of the North American aluminium market, it is a much more sensitive gauge of US tariff impacts than the London Metal Exchange price.
It is also an increasingly popular one with contract volumes up 32 per cent in the first quarter and open interest at a year's high.
The premium exploded upwards on February 13, the day of the release of the Section 232 investigation into US imports on national security grounds.
The report's recommendations for blanket tariffs and/or quotas propelled the CME's Dec 2018 contract from 13 to 16.5 cents/lb, a 27 per cent jump equivalent to a $77 per tonne rise in the cost of delivered aluminium in the US Midwest.
After a brief pull back it surged again to 17 cents/lb after Mr Trump announced on March 1 his intention to impose duties of 25 per cent on steel and 10 per cent on aluminium.
Crucially, there was no talk of countries being exempted, not even Canada, the largest supplier of aluminium to the US market place and one that is "integrated" with the US industrial base, to quote the Section 232 report.
There was panic in Canada with officials simultaneously promising it would never happen and mulling possible retaliatory measures.
And there was panic everywhere else, encapsulated by the surging aluminium premium.
However, the premium dropped following Mr Trump's signing of the executive order on tariffs on March 8 with "carve-outs" for both Canada and Mexico.
It dropped harder towards 15 cents/lb after US Trade Representative Robert Lighthizer said on March 22 the administration would "pause" on both steel and aluminium tariffs for Argentina, Australia, Brazil, the European Union and South Korea.
These exemptions, particularly that of Canada, significantly cushion but do not eliminate the tariff hit on the US market.
Exempted, for now at least, are three of the largest 10 suppliers of primary unwrought aluminium to the United States last year; top supplier Canada; fourth largest Argentina; and eight largest Australia.
India, sixth largest source of imports, is lobbying hard for its own carve-out.
And others will be doing the same. Among last year's top 10 importer list are the UAE and Bahrain, all of which offer intriguing bilateral deal potential for a US administration that explicitly mixes trade and politics.
Probably not lobbying so hard are Russia and Venezuela, two of the five countries singled out in the Section 232 report as benefiting from state subsidy, being potentially unreliable partners or acting as points of transhipment.
The other three were China, Vietnam and Hong Kong.
Russia was the second largest shipper of aluminium to the United States last year and what happens to that metallic flow is perhaps the key question to determining the lasting market impact of tariffs.
However, the broader take-away here is that after threatening to use a sledge-hammer, the US administration has narrowed its sights on those it regards as the real targets.
A similar pattern emerges from the tariffs on aluminium products.
Four out of last year's 10 top suppliers of aluminium plate, sheet and strip are exempt. Canada, Germany, Austria and France all duck the tariff bullet.
That leaves exposed China, target number one and by a wide margin the biggest-volume supplier of products to the United States last year.
It would be wrong, however, to suppose that all of this is low-grade material being dumped out of an oversupplied Chinese market.
Chinese imports to the United States, particularly those of lower-specification products, have been falling in recent years in response to ever tougher anti-dumping actions on specific product lines.
Last month, for example, the US Commerce Department slapped hefty duties on imports of aluminium foil from China, previously a major part of the two countries' aluminium trade.
Some of what China supplies may not be easily replaceable, opening the door for potential product exemptions, a process that is now underway.
This gradual dilution of the original "shock and awe" threat to hit everyone and every product with a 10 per cent tariff is why the aluminium premium was steadily retreating from its earlier highs.
Until last week, that is.
The rising political trade temperature has whiplashed US aluminium premiums higher again.
The Dec 2018 contract closed Thursday back up at 17 cents/lb. as everyone reassesses, again, their previous assumptions about how this tariff storm is going to play out.
An interesting contrarian indicator comes in the form of the share price of Century Aluminum, a prominent lobbyist for action against China aluminium imports and a domestic producer now promising to reactivate idled capacity.
The Century share price hit a two-year high of $24.77 on the day the Section 232 report was released.
It slumped on the two exemption announcements and is currently trading just above $17 with no obvious knock-on impact from the renewed strength in physical premiums.
Is that because, when it comes to aluminium at least, Mr Trump's tariffs are not what they first appeared?