TRUE OR FALSE: DO STEEL AND ALUMINUM TARIFFS THREATEN A RECESSION IN MEXICO? (*)

Introduction

On February 10, the Trump administration announced in a press conference at the White House the imposition of a 25% tariff on steel and aluminum imports from all countries, without exception.

According to the Trump administration, the importation of steel and aluminum by the U.S. resulted in a loss of 107,000 jobs, and it is estimated that this tariff policy will create 120,000 new jobs (02/10/24). It is worth noting that in 2024, Mexico exported 327,000 tons of steel valued at $304,516,455 and $28.21 billion in total trade. However, according to Mexico’s Ministry of Economy, the country imports more steel and aluminum from the U.S. than it exports, resulting in a trade surplus of 2.4 million tons, equivalent to $4.1 billion, according to data from the U.S. Census Bureau. This demonstrates that Mexico’s steel industry is not responsible for U.S. company closures nor does it pose a threat; on the contrary, it represents an opportunity for the U.S.

It is important to remember, as we mentioned in our previous video (02/02/24), that Trump was clear during his presidential inauguration, stating that his plan to “Make America Great and Strong Again” included a new trade and tax policy to ensure that countries trading with the U.S. pay tariffs for the alleged trade abuses against the U.S.. The goal is to subsidize American industries or facilitate the reinstallation of those that shut down in the 1980s and 1990s due to the expansion of free trade, which led to U.S. companies closing and importing cheaper products instead.

Given this, it is crucial to warn about the risks of misinformation from certain analysts, rating agencies (such as Fitch Ratings), or former government officials (as stated by Ildefonso Guajardo in various media interviews—who was an advisor on NAFTA and responsible for USMCA negotiations under the Salinas and Peña Nieto administrations). These statements often create public uncertainty, are misleading for decision-makers, or, in some cases, fuel bilateral conflicts.

Key Considerations

First: It must be emphasized that this U.S. trade policy is applied globally—including all U.S. allies—and is not specifically directed at Mexico. Therefore, the Mexican government should avoid engaging in a trade war with the U.S. or adopting retaliatory measures against American products, as suggested by Ildefonso Guajardo.

Second: Mexico should file disputes against the U.S. government before a USMCA trade dispute panel, in accordance with the agreement’s legal framework, to defend its interests through peaceful commercial means rather than political confrontation. Under this framework, Mexico has equal standing, and the case for winning is strong, given the terms agreed upon and ratified by the three signatory governments, regardless of the upcoming renegotiation next year.

Third: The government of President Claudia Sheinbaum should not respond to this tariff policy, as the final cost burden falls on American consumers. While initially, it represents a tax burden on Mexico’s steel industry, it will not significantly impact the local sector in the long run, as production will continue, and businesses will recover profits in the short term. The U.S. cannot replace Mexican steel production with that of another country, as all nations will face the same tariff. Therefore, Mexican steel production will remain the most competitive option. By not retaliating against Trump’s tariffs, Mexico protects its national industry and prevents further retaliatory measures from the U.S.

Ultimately, the U.S. will continue to need Mexico as a supplier, particularly to replace imports from China. This contradicts the pessimistic recession forecasts made by some rating agencies. Even if the U.S. plans to build new steel plants domestically, the construction and operationalization of these facilities is not immediate—each project could take over three years, roughly the duration of Trump’s administration.

Sources:

• “Trump to impose 25% tariff on steel and aluminum; how it affects Mexico.” – Infobae.com (02/09/24)

• CNN News (English & Spanish) – 02/09/24

(*) Author:

Alexis Juárez Cao Romero holds a postdoctoral degree in public policy for the energy sector and multiple master’s degrees in senior management and strategic planning, as well as studies in North American and European affairs at various public and private institutions. He has been a contributor to the Russian news agency Sputnik, authored two books, published over 30 articles on various topics, and written specialized essays on the energy sector. Additionally, he served as Electoral Advisor for the state of Puebla, held executive roles at private universities, and worked as Business Director in the petroleum sector.