Industry groups welcome US, Mexico crackdown on steel, aluminum trans-shipment

US-based steel, aluminum and general manufacturing industry groups welcomed a joint initiative enacted July 10(opens in a new tab) by the US and Mexican governments to whittle down the volumes of steel and aluminum imports trans-shipped from third-party countries, through Mexico and into the US to evade duties.

Aluminum Association CEO Charles Johnson said the intergovernmental cooperation will safeguard the North American aluminum market.

"By working with our fellow [United States-Mexico-Canada trade agreement] countries on strong trade enforcement, we can help drive continued growth and investment in the region, creating jobs and capturing increased demand expected in the coming years," Johnson said in a statement. "This plan is an example of how regional cooperation still works."

US imports from Mexico have been exempt from the 25% duty on steel and 10% duty on aluminum that the US has imposed on shipments from many other countries since 2018 under Section 232 of the Trade Expansion Act of 1962. Mexico was provided an exemption as part of the USMCA with the understanding that the country would control its metal export volumes to the US.

However, since 2023, various US industry groups have flagged rising steel and aluminum imports from Mexico, with suspicions that metal from countries such as China has been distorting Mexico's market with knock-on effects in the US. Steelmaker Cleveland-Cliffs CEO Lourenco Goncalves has even called for Mexico to be removed from the USMCA, (opens in a new tab)and other groups have suggested that the 25% Section 232 duty be reimposed on the country's steel exports to the US.

The US and Mexican governments have worked over the last several months to determine a solution to industry concerns. The joint effort announced July 10 will now only exempt a Mexican steel shipment from the US' Section 232 import tariff if the product was originally melted and poured within the USMCA nations. Aluminum imports will only be exempt from the Section 232 tariff if the subject product was made with primary aluminum that was not smelted or most recently cast in China, Russia, Iran or Belarus.

Steel Manufacturers Association President Philip Bell congratulated US and Mexican trade negotiators for reaching a solution that he said would benefit US steel companies and workers while improving the trade relationship between the US and Mexico.

"We stand with the administration and hope for continued engagement between our two countries to enforce today's agreement and continue work that prevents import surges," Bell said in a statement.

China's 'backdoor' into the US

Steel and aluminum from China now represent a near-negligible share of total US imports due to years of trade enforcement. For example, product from China is subject to Section 232 tariffs, Section 301 tariffs and dozens of product-specific antidumping and countervailing duties.

However, China's steel and aluminum production overcapacity continues to be a concern throughout the global market, especially as the country's domestic demand has fallen and exports have risen this year(opens in a new tab).

With direct shipments to the US uneconomical due to the hefty duties, exported metal from China has flowed into other countries. Since last year, US metal industry and manufacturing stakeholders have increasingly warned that Mexico has served as one of China's metal export destinations. Subsequently, concerns have been raised regarding the ultimate trans-shipment of this metal into the US to evade duties, or the displacement of Mexican production into the US market.

Alliance for American Manufacturing President Scott Paul said Mexico has become China's "latest backdoor into the US."

"We know Beijing is using countries like Mexico to dodge US tariffs, including duties specifically put into place to deter China's massive industrial overcapacity," Paul said in a statement. "China and other nations must not be allowed to exploit trade with our neighbors in order to avoid US trade enforcement."

"This is the right call by the Biden administration, and both Congress and the executive branch must continue to find ways to take on China's increasingly sophisticated trade cheating," Paul added.

Section 232 'loophole'

During a press briefing with reporters, US National Economic Advisor Lael Brainard said the US' current moves to enforce the melted-and-poured steel requirement and smelt-and-cast aluminum requirement strengthened the Section 232 tariff program, which only targets direct imports without addressing trans-shipment.

"These actions fix a major loophole that the previous administration failed to address in that countries like China used to avoid US tariffs by shipping their products through Mexico," she said. "[President Joe Biden] made a commitment to level the playing field for our steel and aluminum makers and workers."

American Iron and Steel Institute CEO Kevin Dempsey agreed that the new requirements "close a loophole in the Section 232 program," but called for continued trade monitoring efforts.

"This reform can only be effective if Mexico ensures that accurate and complete information on the country of melt and pour of its steel imports and exports is collected and made available to US officials," he said in a statement. "We urge the US government to continue to press for additional actions to address the many schemes by steel traders to circumvent and evade US trade laws."