This article is written by Austin Garcia
On May 3rd, Mexico made a significant move in its trade policy by removing recently applied tariffs on a variety of goods, including Aluminum, Steel, Wood, Textiles, and more. These products had previously been subject to tariff increases ranging from 5% to 25%. The decision to remove these tariffs was likely influenced by several key factors:
Economic Impact of Mexico’s Tariff Removal: The implementation of tariffs may have inadvertently had a negative impact on the Mexican economy. Increased costs for businesses and consumers could have resulted from these tariffs, leading to potential economic instability. Industries that rely heavily on imported goods might have faced significant challenges, leading to a backlash and subsequent pressure on the government to remove the tariffs.
International Relations and Mexico’s Tariff Policy: The tariffs could have strained Mexico’s relations with its trading partners, especially those countries with which it has free trade agreements. The removal of these tariffs might be seen as a strategic move to maintain positive diplomatic and economic relations, particularly with neighboring countries like the United States.
Domestic and International Pressure on Mexico’s Tariff Policy: There may have been considerable pressure from both domestic industries and international bodies. These groups could have argued that the tariffs were counterproductive to the principles of free trade. Threats of retaliatory measures from other countries might have prompted Mexico to reconsider its decision.
Legal Challenges to Mexico’s Tariffs: The tariffs could have faced legal challenges on both a domestic and international level. These challenges might have questioned the validity of the tariffs or their compliance with existing trade agreements.
Policy Reevaluation and Mexico’s Tariff Removal: The Mexican government may have reevaluated its policy in light of the broader economic implications and feedback from various stakeholders. This reevaluation could have led to the decision to remove the tariffs.
The Mexican government cited the lack of domestic production of raw unalloyed or alloyed aluminum as a primary reason for the change. They stated that the availability of such merchandise in countries with which Mexico has signed an international treaty is insufficient to meet the needs of key industries, such as automotive, auto parts, and electronics.
US Aluminum Imports from Mexico: US aluminum imports from Mexico have seen a significant increase, reaching an average of 100,000 metric tons per year from 2021 to 2023. This is a notable increase compared to historical levels, which were below 80,000 metric tons per year. However, these volumes still accounted for only 2% of total imports. The rise in US aluminum imports from Mexico has led to concerns about unfairly traded aluminum from China and Russia, which could negatively impact the larger North American market. Unwrought aluminum imports from China have risen to nearly 20,000 metric tons in 2023.
Annual US aluminum imports from Mexico.
However, not all reactions to this policy change have been positive. The Aluminum Extruders Council (AEC) issued a warning on May 13th that Mexico’s recent revocation of tariffs on unwrought aluminum imports could have negative consequences on the US aluminum extrusion industry. This is despite the fact that Mexico’s direct tariffs on extruded products remain in place. The Council stated, “While the tariffs announced in April are still in place for the entire continuum of extruded profiles which protect Mexican extruders from products entering Mexico for consumption in Mexico, the cancellation of the tariffs on alloyed and unalloyed aluminum ensure the continuation of Chinese and Russian aluminum entering the US and Canadian markets via Mexico as extrusions.”
Even in the United States, Chinese steel and aluminum aren’t in the clear as well. President Joe Biden is set to impose new tariffs on Chinese industries, including electric vehicles (EVs), aluminum, steel, solar equipment, and medical supplies, ahead of the November presidential election. Despite China’s minimal EV exports, tariffs on Chinese EVs are expected to quadruple from 25% to 100%. The impact of these tariffs on China’s dominance in the solar industry and China’s export of $30.9 billion worth of medical goods to the US will depend on the specifics of the trade levy. The actual effect of these tariffs will depend on the final details and industry adaptation.
Tariff rate changes on Chinese imports by product.
This situation highlights the complex nature of international trade and the delicate balance that must be maintained to ensure the benefits of free trade while protecting domestic industries. Even in the blink of an eye a whole market can change. It will be interesting to see how this situation evolves and what impact it will have on the global aluminum market.
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