Issue No. 7

Even as the U.S. Surplus in Steel Trade With Mexico Widens, USTR Threatens Tariffs

On Feb. 16, Katherine Tai, the U.S. Trade Representative (USTR), met virtually with Raquel Buenrostro, Mexico’s Secretary of Economy.
According to the official readout of the meeting by the Office of the USTR, “Ambassador Tai stressed the urgent need for Mexico to take immediate and meaningful steps to address the ongoing surge of Mexican steel and aluminum exports to the United States and the lack of transparency regarding Mexico’s steel and aluminum imports from third countries.”
The readout went on:
Noting that U.S. consultations with Mexico on this matter have been ongoing for over a year, Ambassador Tai emphasized that the 2019 Joint Statement on the Section 232 Duties on Steel and Aluminum allows for the reimposition of Section 232 tariffs. Conversations between both countries will remain ongoing.
Steel experts were baffled by the content and tone of Tai’s accusation and threat. According to an Excelsior report by the respected business analyst Alicia Salgado, Minister Buenrostro responded that “the steel industry in the United States faces a competitiveness problem, and the way they want to solve it is by threatening to increase 25% tariffs on steel.” Salgado wrote that Buenrostro rejected “threats of tariff increases.”
The competitiveness deficiencies, say industry observers, are centered in smaller, less efficient U.S. steel manufacturers. Without a full view of the steel trade landscape, they have apparently been pressuring their members of Congress to pressure USTR, in turn.
In fact, Mexico and the U.S. have been cooperating to build shorter and more stable supply chains as COVID-19 and geopolitics have proven China and other sources to be unreliable. Mexico has also worked the U.S. in building a detection and reporting system to trace transshipments (see below).
The North American value chain in steel has provided the U.S. with many benefits, including a trade surplus and domestic job creation. Mexican steel production complements U.S. production, filling gaps and creating more choices for industrial customers.
The USTR readout also runs counter to recent positive comments by U.S. Treasury Secretary Janet Yellen and her Mexican counterparts. And the readout runs counter to the facts….

• First and foremost, steel exports from Mexico to the U.S. have actually decreased during 2023 while exports from the U.S. to Mexico dramatically increased.​

In a press release on Feb. 18, CANACERO, the Mexican steel industry association, pointed out that Mexico’s trade deficit in steel with the U.S. is now $3.2 billion – “the largest in history.” Using data from the U.S. Census Bureau and private industry, CANCERO reported that Mexico imported 4.1 million tons of steel from the U.S. last year and exported only 2.3 million tons to the U.S. That amounts to a surplus of 1.8 million tons.

Mexico, of course, is a smaller market than the U.S., so the impact of U.S. imports is far greater in that country. In 2023, CANACERO reports….

• U.S. imports represented 13.9% of total Mexican steel consumption; Mexican imports accounted for merely 2.5% of total U.S. steel consumption.
• While Mexico’s market share in the U.S. is tiny to start with, it dropped precipitously last year – from 3.3% to 2.5%.
• Since 2020, the first full year after the “Joint Statement” to which Tai refers, U.S. steel exports to Mexico jumped roughly 50% – over twice the rate of increase of Mexican steel exports to the U.S.
• With roughly half the total, Mexico is the number-one market for U.S. steel exports, according to the U.S. International Trade Commission. The Department of Commerce’s International Trade Administration reports in its Global Steel Trade Monitor: “Canada and Mexico have ranked first and second as the top destinations for U.S. steel exports for more than a decade.”

The steel industry in North America faces greater challenges and opportunities: unfair trade, excess steel production capacity in China, climate change, circumvention, transshipment, and more. On the global agenda, Mexico is indeed an ally of the U.S. steel industry, and together they can achieve the best results. Collaboration on priority objectives is the best course.

Mexican Cooperation With the U.S. on Detecting Transshipments

It’s safe to say that, while Mexico may retaliate if the U.S. re-imposes Section 232 duties, Mexico has no desire for a trade war with the United States over steel.
As this newsletter pointed out in December: “The U.S. and Mexico have a common cause in ensuring that Chinese and other international firms – especially those provided by their governments with subsidies and other benefits – do not exploit Mexico’s favored North American tariff position to circumvent trade laws. Concerns extend beyond the written regulations alone to matters of strict compliance with rules of origin.”
There is no doubt that Mexico needs to be sensitive to U.S. concerns in its own policy making and enforcement, with both nations working in complementary fashion.
So far, Mexico has indeed worked hard to cooperate, respecting the terms of the Joint Agreement, which calls for Mexico to “prevent the transshipment of aluminum and steel made outside of the U.S. to the other country.” The agreement also states: “The United States and Mexico will establish an agreed-upon process for monitoring aluminum and steel trade between them.”
An objective observer would probably say that Mexico has gone above and beyond the agreement. Mexican President Andres Lopez Obrador on Aug. 15 imposed 25% tariffs on steel imported from countries with which Mexico does not have a free trade agreement. Those tariffs match the Section 232 duties with the intention of preventing China and other large manufacturing nations like Turkey and South Korea from transshipping excess steel without tariffs to Mexico, making minor upgrades, and then sending it across the border, tariff-free.
This tariff measure strikes a blow against an activity that harms the U.S. and Mexican steel industries. In response to the Mexican action, a spokesperson for the Ambassador Tai stated, “The United States welcomes Mexico’s efforts to address global non-market excess capacity in the steel sector.”
Mexico has also cooperated with the U.S. on a test project for a new interoperable system which, among other functions, can identify the foreign source of steel products imported from Mexico to the U.S. As the Feb. 18 statement by CANACERO states: “The Mexican steel industry has completed the first phase of the pilot program with the company Transmute, endorsed by CPB [U.S. Customs and Border Protection] to establish traceability mechanisms to the origin of steel that allow verifying the authenticity of the origin of imported products.”

Yellen Praises Mexican Efforts to Secure North American Supply Chains

One U.S. official who clearly understands the value of Mexico in securing supply chains and helping the U.S. economy thrive is U.S. Treasury Secretary Janet Yellen herself. As we noted in a previous newsletter, late last year she traveled to Mexico for discussions with government officials, including Secretary of Finance and Public Credit Rogello Ramirez de la O, and on Dec. 7 concluded an agreement to monitor foreign investments and share information about screening them. She said in a prepared statement:
We will…continue supporting the creation of reliable, secure supply chains that span the United States and Mexico and benefit both our economies through actions to protect our national security in critical industries. I am pleased to announce that the United States and Mexico have today signed a Memorandum of Intent that reaffirms our joint commitment to counter the threat certain foreign investments pose to our national security and establishes a bilateral working group to exchange technical knowledge and best practices.
The U.S and Mexico “benefit when they work together to guard against foreign investments that pose national security risks,” Yellen said. 
In a separate statement after meeting with private-sector executives, she said: “Exports to Mexico, from electrical machinery to plastics, benefit American workers and firms by supporting more than one million American jobs. American manufacturers and consumers gain from significant imports, including of automobile parts, glass, iron, and steel. And Mexican companies are investing in production in the United States.”
It is this symbiotic relationship that must be maintained. Threats from leading public officials rarely help.

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