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Mexican exports to the United States and Canada account for about 83 percent of its total shipments. But with U.S. President-elect Donald Trump’s plans to impose 25 percent tariffs on Mexican imports, new risks loom for the Mexican steel industry. The same tariff also could apply to Canadian imports, while China will be subjected to 10 percent additional tariff.
Tariff trade-off
U.S. domestic mills have been vocal in denouncing less-than-fair market-value Chinese steel imports into the U.S. The country’s domestic steel sector was damaged by inexpensive steel from China and India at the start of the 21st century, which crippled several producers.
A report by the Congressional Research Service suggests almost 40 steel companies filed bankruptcy at some point in the late 1990s. Some integrated steel producers operating under Chapter 11 have included Bethlehem Steel, Republic Steel, Wheeling-Pittsburgh Steel, Weirton Steel and National Steel. Meanwhile, LTV was liquidated under Chapter 7 of the bankruptcy code and, subsequently, many of its assets were brought back under the ownership of the International Steel Group. Additionally, many minimills producing steel from recycled feedstock have gone out of business.
The U.S. responded to these developments by adopting measures to safeguard the domestic steel industry. Most recently, 25 percent tariffs on Chinese steel and aluminum went into effect in 2024, and U.S. officials pressured Mexico and Canada to follow suit. The U.S. also added a melt-and-pour rule for aluminum and steel imports from Mexico. To avoid Section 232 tariffs on Mexican steel and aluminum imports to the U.S., the metal must be melted and poured in Mexico, Canada or the United States. Mexico and Canada introduced their own tariffs on Chinese steel and aluminum imports in August of last year, yet U.S. authorities believe Chinese steel is circumventing tariffs by coming in through Mexico.
In September 2024, a bipartisan group in the U.S. asked President Joe Biden’s administration to reinstate a 25 percent tariff on Mexican steel levied in 2018 under Section 232 of the Trade Expansion Act. The tariff was waived in 2019 by the Trump administration as long as imports of Mexican steel stayed at historical levels. The group argued that imports rose 500 percent from historical levels and could reach 700 percent by the end of 2024.
Speculation is rife that Trump plans to impose 25 percent tariffs on all goods and services from Mexico and Canada until they address illegal immigration and fentanyl supply to the U.S. Should the U.S. levy these tariffs, Mexican President Claudia Sheinbaum has threatened retaliatory tariffs.
Imports in numbers
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According to the American Iron and Steel Institute, Washington, per Census Bureau data, U.S. imports of finished steel products from Mexico from January to September 2024 fell by 23.6 percent to 2.54 million tons from 3.33 million tons in the same period in 2023. Meanwhile, imports from Canada, the largest steel exporter into the U.S., fell by 4.5 percent to 5.01 million tons from 5.25 million tons in 2023.
Nevertheless, imports of Mexican steel last September alone grew by 66.3 percent to 267,000 tons from 161,000 tons in September 2023. Yet annual comparisons for each month are more volatile. In August 2024, Mexican steel exports to the U.S. dropped annually by 5 percent to 161,000 tons.
The argument posed by the bipartisan group and other U.S. stakeholders is that even though the general trend in 2024 was going in the right direction, volumes remained well-beyond the benchmarked tonnages seen from 2015 through 2017 before the initial 25 percent round of tariffs were introduced. According to trade data from the U.S. Department of Commerce, from 2015 through 2017, total steel imported from Mexico averaged 3.09 million tons annually, while that figure reached 5.3 million tons in 2022. In 2023, it retreated to 4.12 million tons.
Although Mexico has no absolute grip on certain U.S. supply chains, it was the country’s largest trade partner in 2023. Mexican tariffs could strain certain supply chains and increase the price of some consumer goods sold in the U.S.
The negotiation table
Mexico has begun negotiations with Trump’s team. The country has pointed to a positive trend in reducing steel exports to the U.S. and has floated introducing retaliatory tariffs.
Canada and China also have begun to execute their strategies. In early December last year, China banned exports of metals in electronics manufactured in the U.S. and by U.S. companies, demonstrating its production muscle for some metals. The U.S. depends on Chinese imports for up to 50 percent of some essential metals.
Although Mexico has no absolute grip on certain U.S. supply chains, it was the country’s largest trade partner in 2023. Mexican tariffs could strain certain supply chains and increase the price of some consumer goods sold in the U.S. Tariffs also can be negotiation tools for other matters between the U.S. and Mexico, such as immigration and the fentanyl crisis.
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A new beginning
Some Davis Index sources have been discussing a potential U.S. recession in the first quarter of this year should the proposed tariffs be fully implemented by the Trump administration. For recovered ferrous and nonferrous metals, positive sentiment could be delayed to the second quarter of 2025.
U.S. domestic ferrous traders were expecting higher prices in January as mills would restock after paring down inventories to increase liquidity at the home stretch of the financial year. Inclement weather, which is a serious factor in December, could remain a significant issue as 2025 starts.
December 2024 U.S. scrap prices were expected to settle by the second week of that month and could fall by $10 to $20 per ton. January is expected to recover potential losses seen in December, and February would bring real increases in price. Yet, tariffs remain a wild card for the next few months.
The tariffs, even with their drawbacks for end consumers, are meant to protect the domestic steel industry. They could spur domestic steel production in the mid to long term and shore up recycled steel prices. Mexican ferrous prices could decrease as exporting material to the U.S. becomes more challenging and more material stays in Mexico.
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