Trade Cases

Leibowitz: Steel Plays Role in US, Mexico Trade Issues

Written by Lewis Leibowitz

Mexico continues to have its problems with US relations. On March 3, former Attorney General William Barr penned a column in the Wall Street Journal about failures by Mexico to stem the drug cartels. Illegal drugs are flowing into the US over the apparently porous border. Barr recommends that the US take action reminiscent of General John J. Pershing in 1916, when the US Army took out after Poncho Villa. We didn’t capture Villa, but we did poison US-Mexico relations for about 60 years.

IN PROGRESS... Leibowitz:

Last month, 13 US Senators signed a letter to the Biden administration claiming that a surge of steel imports from Mexico should earn Mexico a resumption of Section 232 tariffs, which were terminated for Mexico in May 2019. The letter, addressed to Commerce Secretary Gina Raimondo and US Trade Representative Katherine Tai, excoriates Mexico for an “unsustainable” surge of steel imports “disrupting” the US industry. The closure of a steel conduit facility in California was laid at the doorstep of the alleged surge.

The data supporting this claim of surge was spotty. The featured product in the letter was steel conduit pipe used in construction. Steel conduit imports from Mexico in 2022 were about $68 million, about 0.5% of a total of $13.7 billion in steel imports from Mexico. Total steel imports from Mexico amount to about 1% of the $800 billion total US-Mexico bilateral trade.

Mexico has traditionally been the leading import supplier to the US of steel conduit pipe. Mexico’s preeminent position as the leading import source of steel conduit is based on Mexico’s proximity to the US market. This makes sense, because conduit pipe is expensive to transport by ship. Since 2015, Mexico has always accounted for well over half of global US imports of steel conduit pipe.

The senators’ letter claimed that the volume of imports had increased in the 2021-22 period 73% from the 2015-17 average. The value has increased more than 100% mainly as a result of inflation. The 2015-17 “baseline” period is not much of a basis for comparison because it is so far in the past. That “baseline” is a feature of the steel exclusions process. That “baseline” is of marginal relevance even there. It has been the baseline since the exclusion process was started in 2018, at a time when that three-year period had some relevance. 

Mexico has other beefs with the United States as well. The US lost a dispute settlement case under the United States-Mexico-Canada (USMCA) agreement on the rules of origin for automobiles. And Mexico is in the midst of another dispute over energy policy, as I mentioned a few weeks ago. President Andrés Manuel López Obrador has remade Mexico’s energy sector, perhaps emulating President Biden’s “Buy American” strategy. Mexico has put government firmly in control and effectively buried free enterprise. 

The complaint about the Mexican import surge seems a bit of a tempest in a teapot, given the numerous issues with Mexico currently percolating. 

It seems unlikely that the United States would reimpose 25% tariffs on Mexican steel imports, damaging bilateral relations and making resolution of more serious problems that much harder. The damage to the US economy would also be significant, jeopardizing American jobs that depend on keeping steel prices comparable with the world market. 

The letter criticized rising imports of Mexican semifinished steel (e.g., slabs) into the US.  However, US rolling mills and other steel processing operations rely on imports of semifinished steel that are produced in the US but are not widely sold by domestic producers to unrelated purchasers. Brazilian semifinished steel was once freely available, but Section 232 quotas on Brazil have strictly limited Brazil’s ability to sell in the US. Russia, another principal source of semifinished steel, has now been cut off due to the war in Ukraine. Russian slabs are now tariffed at about 100%. This puts more pressure on Mexico to step up semifinished steel imports to meet American needs. 

All that having been said, a letter signed by 13% of the United States Senate from nine different states (Alabama, Arkansas, Florida, Massachusetts, Minnesota, North Carolina, Ohio, Pennsylvania, and Wisconsin) bespeaks a concern about trade policy and about Mexican-American relations that should be taken seriously.

Some are from steel-intensive states, inlcuding Arkansas, North Carolina, Ohio, and Pennsylvania. Others not so much—two senators from Florida, one each from Massachusetts and Wisconsin. Obviously, this involves a comprehensive effort, perhaps largely defensive but also seeking more protection for steel.

I believe that the steel industry has become a bellwether in the political fight for blue-collar workers between Democrats and Republicans. Steel workers are a small fraction of US blue-collar employment, and most steel workers are not unionized. The dominant steel companies now are mini-mills that use electric furnace technology, and most of those workers are not in unions. Thus, the political battle for those workers transcends political ideology. 

It may also conflict with the national interest in maintaining a vibrant and competitive US economy. More and more, efforts to increase US manufacturing run into obstacles of our own making—ESG investing, regulatory overreach that discourages bringing production back to the US, and failing to recognize the degree to which manufacturing competitiveness means reliance in global supply chains. Trade protection falls into this category of largely counterproductive steps that are nevertheless popular. These are complex problems that have no easy fixes.

In the end, politics can prevent progress on these difficult problems. Solving them requires looking at all sides and recognizing that every step has both positive and negative consequences. 

Lewis Leibowitz 

The Law Office of Lewis E. Leibowitz
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Lewis Leibowitz, SMU Contributor

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