Friction growing between Mexico and US on steel trade

US senator Sherrod Brown (D-Ohio) sent a letter last week calling on President Joe Biden's government to press Mexico to halt what he called an "unsustainable surge of Mexican steel imports into the US market, in violation of the 2019 Joint Agreement on Steel and Aluminum." 

"This matter continues to be a prevalent issue harming the American steel industry and American steelworkers nationwide. In light of the recent presidential election in Mexico, I... urge you to address this with your counterparts in president-elect [Claudia] Sheinbaum’s cabinet," the letter reads.

Brown is one of the main promoters of a legislative proposal to impose a 25% tariff on imports of Mexican steel, as its rising sales of the metal in the US have revived suspicions about alleged triangulation of subsidized products from China through Mexico and fears of a possible tariff war in the steel industry with the US, which is the latter's main trade partner.

Mexico's iron and steel chamber Canacero responded to the letter with a statement, saying that "the reality is that the Mexican steel surge is simply not happening, and the US steel industry has consistently maintained a significant trade surplus in finished products with Mexico. In 2023 alone, this surplus exceeded US$3 billion."

However, Canacero general director Salvador Quesada also warned that the chamber firmly believes that a steel trade war between Mexico and the US would result in mutual market closures and undermine the region's competitiveness in this sector. 

"Mexico is working with the United States to try to prevent this controversy from getting out of control. I don't immediately see an imminent trade war regarding steel," Kenneth Smith, Mexico's former head negotiator for the USMCA, told BNamericas, although he warned that "the pressure is going to continue to rise."

“It is an election year in the United States, and in addition to the issue of steel triangulation, one of the main concerns of the United States has to do with the Chinese investments that are coming to Mexico and the announcements by Chinese companies in the automotive sector that they want to establish themselves in our country and that, in the opinion of many politicians, represents a threat to the US,” said Smith, who is now a partner at consultancy Argon.

“So, this means that the issue of China will be at the forefront for the next administration in Mexico and for the next administration in the United States,” he underscored.

The former Mexican chief negotiator of the USMCA free trade agreement highlighted that both the Mexican government and the local steel industry have countered, based on official figures, the US position that there is triangulation from China, and there have also been several meetings between both governments to address the issue.

"Mexico not only promised to move forward with strengthening monitoring of imports, but in April of this year it published a decree in which it increased most favored nation tariffs on more than 500 products, many of them from China," Smith said.

According to information from Canacero, excluding semi-finished steel, which US steel mills acquire to roll, Mexico's exports have trended significantly downward over the last 18 months, while US exports to Mexico have grown enormously.

US “imports from Mexico for finished steel products declined 28% in 2023 from 2022. Through the first four months of 2024, the declining trend continues (-12% vs same period in 2023),” the chamber said in its response to the US complaints.