Trade negotiations between the United States and Mexico are currently moving toward a quota system that could allow for tariff reductions on a specific volume of steel imports, a move seen as a response to concerns from American metal manufacturers. According to people familiar with the talks, the proposed framework would ease tariff burdens on some Mexican steel imports that American automakers and other sectors consider essential for production. However, the exemption, known in trade jargon as a "tariff-rate quota system," would be limited to a specific volume of imports, likely based on average quantities shipped to the United States between 2015 and 2017.
A delicate balance between supporting domestic industry and providing production inputs
This trend reflects the challenges facing U.S. negotiators in their talks with countries seeking tariff reductions or exemptions from the range of tariffs imposed by President Donald Trump in recent months. The US president's team finds itself forced to balance its pledge to revive American manufacturing on the one hand, and mitigate the impact on domestic factories that have long relied on imported products on the other. Suddenly imposed tariffs on foreign materials, such as the new 50% tariffs on steel and aluminum, could discourage the production of goods that rely on these materials, even if the tariffs help support the American metals industry. White House spokespeople declined to comment on the matter, and the US Department of Commerce did not respond to requests for comment, while Mexico's Ministry of Economy did not immediately comment. People familiar with the matter said that negotiations between the United States and Mexico are still ongoing on several issues but are progressing toward an agreement. Mexico is the third-largest exporter of steel to the United States, accounting for 12% of the country's total imports of the metal.
Quotas equal 88% of last year's imports
The quota system under consideration is based on average historical imports from Mexico, with a focus on the period between 2015 and 2017, according to two people familiar with the details. This period precedes both the significant increase in imports and the slowdown caused by the COVID-19 pandemic. According to U.S. Commerce Department data, using this timeframe would set the quota at approximately 2,799,228 metric tons. Steel imports within this ceiling would be exempt from the 50% tariff but are expected to be subject to a 10% basic duty. Quantities above the quota would be subject to the full duty, the people said. The proposed quotas would therefore be equivalent to approximately 88% of total U.S. steel imports from Mexico last year, which amounted to 3,194,752 metric tons.
In response to pressure from American companies
This approach comes in response to demands from American steel-producing companies, which objected to a full exemption for imports from Mexico, arguing that it would undermine efforts to expand domestic production capacity. This quota allows for a lower cap than current demand, ensuring a market for American products while providing some relief to American steel consumers. It also allows the US administration to provide a trade reprieve to a key ally and partner like Mexico. Source: Bloomberg