febrero 11, 2025

The U.S. increase Tariffs on Steel and Aluminum

President Donald Trump signed an executive order imposing a 25% tariff on all steel and aluminum imports. These tariffs not only potentially violate U.S. trade agreements but also pose a risk to the stability of trade in North America. Get all the details here.

Which are the goods involved?

To begin with, it is important to note that this tariff increase is global in nature. The Trump administration decided to impose tariffs on all countries, with no exceptions. Unlike the tariffs President Trump imposed in his first administration, the new tariff increase is set to impact primary steel products (such as slab and plate) and basic aluminum, as well as finished steel industry products (such as sheet and pipe) and aluminum extrusions. According to the executive order, if steel is melted & poured in the U.S., then these tariffs will not apply to the finished steel products.

Why is the U.S. imposing tariffs?

The Trump administration argues that steel and aluminum are critical industries in the U.S. economy and that the protection of these industries is a matter of national security. Under these premises, President Trump imposed the new tariffs under Section 232 of the Trade Expansion Act.

Do these tariffs breach U.S.-Mexico trade agreements?

Yes, the increase in steel and aluminum tariffs violates, in its face, both the General Agreement on Tariffs and Trade (GATT) of 1994 and the United States-Mexico-Canada Agreement (USMCA). On one hand, the GATT states that countries must maintain tariffs equal to or lower than the maximum tariff to which they committed in their annexed product list. The U.S. has an average maximum tariff of 2.5%. Therefore, imposing a global 25% tariff is inconsistent with this international agreement. On the other hand, the USMCA situation is almost identical, since the U.S. has committed to maintain a 0% tariff for Mexican steel and aluminum products.

To justify this tariff increase, the U.S. invokes the “national security” exception provided in Trade treaties. However, are Mexican imports really a threat to the U.S.?

From which countries does the USA import steel?

In 2023, the main suppliers of iron and steel imports into the United States under Heading 72 of the Harmonized System were the following: Canada, Brazil, Mexico, South Korea, and Germany. Similarly, the main countries that exported derivative steel products under Heading 73 of the Harmonized System to the US were: China, Mexico, Canada, Taiwan, and South Korea.

Despite Mexico being one of the main steel suppliers, the U.S. has a surplus in its steel and aluminum products Trade balance with Mexico. In other words, Mexico has a trade balance deficit with the U.S., as highlighted by the Ministry of Economy on February 11, 2025.

Commercial Trade Balance of the U.S. in Steel and Aluminum 2024 (USD Million)

When will these tariffs enter into force and will they be suspended?

The new tariffs will enter into force on March 12, 2025. Unlike the IEEPA tariffs specifically imposed on Mexican and Canadian products, which were suspended, there is no agreement to suspend or delay their implementation as of today. However, the Minister of Economy, Marcelo Ebrard, stated that he will be in communication with the Department of Commerce and the US Trade Representative (USTR) to present Mexico’s arguments. Mr. Ebrard stated:

"Then, I will have personal communication […] or as determined, with both of them next week, to present the arguments of Mexico. Because this, as sometimes President Trump says, is common sense. Well, we take him at his word. Common sense. Not a shot in the foot. Not destroying what we have built in the last 40 years."

Marcelo Ebrard

How will this U.S. tariff increase affect Mexico?

In 2023, the Mexican steel industry had a notable dependence on its US export market. Per UNCTAD’s trade maps platform, Mexico steel exports to the U.S. represent more than 87% of its total steel exports. This close commercial relationship underscores the magnitude of the impact that the tariffs imposed by the Trump administration could have on the steel industry in Mexico. The new tariffs will increase costs and decrease the competitiveness of Mexican products in the U.S. market. Consequently, Mexico faces a challenging scenario, as steel companies could experience a reduction in their export sales volume, affecting producers, workers and the entire value chain linked to this economic activity.

Will Mexico retaliate against the U.S.?

As of today, Mexico has not declared that it will adopt commercial retaliations. The Mexican Chamber of the Iron and Steel Industry (Canacero) stated that it us waiting to understand the full scope and impacts of the measure in the coming days to decide their next steps. Additionally, Canacero declared that “if necessary, Mexico must apply proportional and immediate retaliations to the steel products from the US exported to our country.”

However, imposing tariffs to US steel could affect the value chains in Mexico. The main question is whether Mexico can legally and unilaterally adopt retaliations without exhausting the dispute settlement procedures provided in the treaties. Interestingly, Mexico and the USA have a side agreement regarding the 232 measures on steel and aluminum, where Mexico reserves the right to “retaliate.”

Remarks and insights

The imposition of new steel and aluminum tariffs by the Trump administration raises questions about the future of trade in North America, the international rule of law and the steel industry in Mexico. On the one hand, it will be important to observe whether these tariffs are part of a negotiating strategy by the Trump administration to actually “adjust” trade with certain countries. Meanwhile, the U.S. steel industry welcomes this milestone, but conventional wisdom tells us that these types of measures will end up raising the costs of imports of raw materials and finished products for the manufacturing industry, affecting end-consumers.

On the other hand, the Mexican government will have to define a clear position and an effective negotiating strategy with the U.S. authorities. Minister Ebrard’s response suggests that Mexico will bet on dialogue and reaching an agreement, but it remains to be seen whether these efforts will succeed in slowing down or softening the application of the tariffs.

Mexico is facing a new negotiation, and it will not be the last, since Trump stated that his team will also review measures against semiconductors (“chips”) and cars in the short term.

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