Key points you need to know about Trump's threat of a 50% copper tariff

U.S. President Donald Trump announced on Tuesday that a 50% tariff will be imposed on copper imports, a rate that far exceeds market expectations, causing U.S. copper futures prices to surge 13% to a record high.

This tariff level is about twice the market expectation, which was generally around 25%, and is another round of import taxes imposed by the U.S. on key industrial raw materials following tariffs on aluminum and steel, threatening to increase new costs for critical inputs to the U.S. economy. U.S. Secretary of Commerce Howard Lutnick stated that the new tariffs will take effect on August 1 or earlier.

The rise in copper prices has raised concerns in the market about inflationary pressures and demand destruction. As a major copper importing country, the U.S. accounted for 53% of its demand through net imports last year, primarily from Chile and Canada.

According to Morgan Stanley analysis, the implementation of the tariffs will be favorable for COMEX copper prices but may put pressure on London Metal Exchange (LME) copper prices. Morgan Stanley analysts estimate that the U.S. has stockpiled about 400,000 tons of "extra" copper inventory, equivalent to about six months of imports, which will buffer the direct impact of the tariffs in the short term.

What Happened?

The 50% copper import tariff announced by Trump during a cabinet meeting on Tuesday far exceeded previous market expectations. This copper tariff is based on Section 232 of the Trade Expansion Act of 1962, which allows tariffs to be imposed on goods deemed essential to national security. The Department of Commerce has been investigating potential threats to U.S. copper supply in recent months.

The White House stated in February that the U.S. has ample copper reserves, but "our smelting and refining capacity is clearly lagging behind global competitors." The government's goal is to ensure that the U.S. maintains a resilient supply chain for the metal. Former President Biden also similarly attempted to promote domestic mining production and metal processing.

According to a Morgan Stanley report, the conclusion of the Section 232 investigation came earlier than expected, which originally had a 270-day deadline that could extend to the end of November. The specific implementation details of the tariffs remain unclear, including whether they will apply to all copper products and whether there will be exemptions.

As a result of this news, copper futures contracts surged 13% in a single day, marking a record high and the largest single-day increase since records began in 1968.

What is the Situation with the Copper Supply Chain?

Copper is used to manufacture a variety of products, from cars to mobile phones to computer chips. In construction projects, this metal transmits electricity and water through wires and pipes. Copper consumption has surged in recent decades and has recently been boosted by the growth of renewable energy production and a boom in data center construction.

According to data from the U.S. Geological Survey, the U.S. imported nearly half of its consumed copper last year, with net imports accounting for 53% of demand. Morgan Stanley research shows that domestic production in the U.S. is about 850,000 tons, far below the import volume of over 1.4 million tons.

From the perspective of import sources, Chile is the largest copper supplier to the United States, accounting for 45%, followed by Canada at 25%, and Mexico and Peru at 3% and 6%, respectively. Although the United States has ample copper reserves, the White House stated in February that "our smelting and refining capacity is significantly lagging behind global competitors."

In the global market, China is increasingly dominating the supply chain. According to Wood Mackenzie data, from 2019 to 2024, China invested nearly half of the $55 billion in global new copper mine investments. The consulting firm estimates that since 2000, China has accounted for 75% of the growth in global smelters.

How will the new tariffs affect copper prices?

Since the initiation of the Section 232 investigation, the United States has been stockpiling copper, and the surge in demand has made copper the hottest commodity globally, pushing U.S. prices far above those of global peers.

On Tuesday, U.S. copper futures rose 23% from a year ago, closing at $5.6450 per pound. Meanwhile, the London futures price was about $4.44 per pound.

According to Morgan Stanley analysis, tariffs are favorable for COMEX copper prices because COMEX reflects the duty-paid price, with all warehouses located within the United States, which should reflect the cost of bringing the metal into the U.S. As a net importer, tariffs imposed by the U.S. will drive up COMEX copper prices.

However, Morgan Stanley also stated that due to a significant increase in recent inventories, this impact will be buffered in the short term, as existing inventories can be consumed first, meaning that the 50% tariff is unlikely to be fully reflected in prices in the short term.

According to Morgan Stanley analysts, U.S. seaborne refined copper imports year-to-date have already matched the total for the entire fiscal year 2024, equivalent to an "additional" purchase of about 400,000 tons of refined copper this year, of which about 120,000 tons have entered COMEX inventories, with at least another 280,000 tons stored elsewhere.

In contrast, LME copper prices may face negative impacts. The U.S. "rush to import" copper has at times tightened supply in markets outside the U.S., leading to a decline in inventories, which supported LME prices and spreads.

Once the tariffs take effect, the "additional" purchases should dissipate, and U.S. imports may even fall below normal levels, as onshore inventories brought in at lower prices will be prioritized for use. Morgan Stanley estimates that the additional refined metal purchases should sustain import demand for about six months.

Morgan Stanley also noted that the timing of the tariff implementation is crucial—if the tariffs take effect in about three weeks, goods already in transit may still attempt to arrive in the U.S. before the tariffs take effect, meaning that non-U.S. markets will not immediately face excess goods in the short term. However, increasing shipments during the three-week window will become more difficult, leading to a loosening of non-U.S. markets for some time to come In addition, Morgan Stanley analysis states that a 50% tariff will increase the cost of copper in the U.S. by approximately $5,000 per ton or $2.25 per pound. Considering that COMEX copper prices are currently at historical highs, this may pose a risk of demand destruction.

From the experience in the aluminum industry, after the U.S. raised aluminum tariffs from 25% to 50% in early June, the Platts Midwest premium was assessed at 65.95 cents per pound, close to the "fair value" calculation of 69 cents, indicating that about 95% of the increase has been absorbed. However, for copper, due to more hoarding opportunities, a slower reaction is expected until existing inventories are depleted.

What does this mean for the U.S. economy?

Copper has long been viewed as a key barometer of economic growth, with rising prices often signaling industrial expansion. However, analysts are now concerned that the price increases of metals and other imported goods triggered by tariffs may drive up U.S. inflation, which remains stubbornly above the Federal Reserve's 2% target.

Higher costs could impact the profit margins of U.S. companies that require copper to build infrastructure or manufacture other products. Meanwhile, the surge in commodity prices is good news for domestic mining companies like Freeport-McMoRan, whose stock price has soared 22% this year.

Risk Warning and Disclaimer

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