The value of Mexican exports of steel and aluminum to the United States is approximately US $2.8 billion at present.
Recently, the Trump administration has placed duties on steel and aluminum that is imported into the United States. While steel coming into the country will be charged a twenty-five percent tax, aluminum will see a duty rate of ten percent rate. However, Mexican exports of steel and aluminum, as well as Canadian exports, have been given an exemption. Mexico benefits in two ways as a result: (1) it gains time to improve its negotiating position vis a vis the North American Free Trade Agreement, and (2) it provides the means by which to better promote the well-being of the nation’s steel sector. US aluminum and steel purchases from Mexico represent less than one percent of the latter country’s gross domestic product (GDP). Only South Korea and Canada surpass Mexico’s steel exports to the US market.
In response to the exemption of Mexican exports of steel and aluminum from US import taxes, Luis de la Cruz, the leader of Mexico’s Institute for Industrial Development and Economic Growth, (IDIC) states that “because of the exemption of Mexico from these newly implemented tariffs, the health and integrity of the Mexican steel sector will be maintained.” He also pointed out that the “exemption of Mexican steel from new taxation will also help to maintain high levels of certainty in the Mexican automotive industry.” According to de la Cruz, it is probable that the exemption of Mexican exports of steel and aluminum from the US imposed import duties will be an indefinite one.
Reports on the subject have stated that among the nations that will most likely feel the greatest adverse effects of the new levies are the Gulf States, and, in particular, Bahrain. Bahrain ships significant amounts of aluminum to the United States. The recently imposed levies will also be felt significantly by smaller market nation’s that manufacture steel for export such as Vietnam and Taiwan. In general terms, because commercial trade with these nations is limited, the impact on the US will be negligible.
The Beneficiaries of Mexican Exports of Steel and Aluminum Tariff Exemption
In addition to Mexican national firms, manufacturers of steel with operations in Mexico will also benefit from the exemption. Domestic producers of the metal include firms such as Altos Hornos de Mexico, Ternium and Tamsa. The Brazilian firm, Gerdau, is present in the country. Aluminum and steel that is produced in Mexico by both foreign and domestic companies go to the automotive vehicle and construction industries. It is also used in the manufacture of machines for the electrical and electronic equipment industries and the metal mechanics industry. Mexico sends US $1 billion worth of steel and US $1.8 billion of aluminum to the United States. Products that incorporate steel from Mexico into their production processes also represent an additional US $6 billion in value.
How will the automotive industry be affected by the exemption of Mexican Exports of Steel and Aluminum?
For a large part of the Mexican automotive industry, the nation is a net importer of specialized steel that is used in the production of high-technology auto parts. This is so because these items have strict technical and quality requirements that US manufacturers can meet. These specialty metals have certain characteristics of strength and purity that is specific to advanced quality auto parts and is important to overall product safety and quality. With respect to these items, Mexico has a trade deficit with the US of $7 billion. This means that, in overall, Mexico imports almost as much steel into its country as it sells to the United States. In addition to sourcing special steel from American vendors, Mexico also, to a lesser degree, obtained this class of product from companies in Japan and in South Korea.
Not a new state of affairs
This most recent imposition of duties on steel is not the first time that the United States government has levied such taxes. Most recently, a similar measure was taken in 2002 by George W. Bush’s administration. Tariffs were imposed beginning March 5, 2002 and were removed on December 4th of 2003. This was because research by the United States International Trade Commission (ITC) has shown that, up to that juncture, the tax that the US had levied on steel resulted in a loss of US $386 million.
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