Final Thoughts

Final thoughts

Written by Michael Cowden

What are some “Black Swans” to watch out for? With the war in Ukraine entering its third year, your mind might understandably move to conflicts overseas.

Section 232 on Mexico – again?!

Here is one closer to home to consider: US trade relations with Mexico are taking a turn for the worse. I mention that because the Office of the United States Trade Representative (USTR) dropped a (virtual) bombshell earlier this month.

Ambassador Katherine Tai met virtually with Raquel Buenrostro, Mexico’s secretary of economy, and provided this recap. “Ambassador Tai stressed the urgent need for Mexico to take immediate and meaningful steps to address the ongoing surge of Mexican steel and aluminum exports to the United States and the lack of transparency regarding Mexico’s steel and aluminum imports from third countries.”

“Noting that US consultations with Mexico on this matter have been ongoing for over a year, Ambassador Tai emphasized that the 2019 Joint Statement on the Section 232 Duties on Steel and Aluminum allows for the reimposition of Section 232 tariffs,” the agency added.

In other words, the Biden administration is threatening to re-impose Section 232 tariffs – 25% on steel and 10% on aluminum – introduced by former President Trump in 2018.  Recall that it wasn’t just the shock of Section 232 that sent HR prices soaring to the (then) shocking level of more than $900 per short ton (st) in the summer of 2018. (You can find our pricing archives here, by the way.) It was also the perhaps even more shocking news that the tariffs would be applied to Canada and Mexico – our closest trading partners when it comes to steel.

What the numbers say

If you look at US government data, this threat of resuming Section 232 on Mexico because of an import “surge” is a bit of a head scratcher. The US imported approximately 3.8 million metric tons (mt) of steel from Mexico in 2023, down 21% from 4.81 million mt in 2022. It’s a similar story when you compare 2022 vs. 2023 import volumes for specific product categories: flat-rolled steel (down 28%), pipe and tube (down 21%), long products (down 32%), or stainless (down 33%).

The declines are less pronounced when it comes to semi-finished products, a category that includes slab. But no small amount of that slab volume probably results from a US mill, one currently without melt capacity, sourcing from a sister company in Mexico. That figure could drop once it starts up its new EAF.

So, what gives? If you’re Mexico, you might lean on those year-over-year comparisons and say the US allegations have no basis in fact. You might also note that US exports to Mexico have increased, per Commerce Department figures. The US exported 4.09 million mt of steel to Mexico in 2023, up 10% from 3.71 mt in 2022. Mexico might in addition note that those volumes are more meaningful given the significantly smaller size of Mexico’s economy compared to that of the US. (The US is the world’s largest economy, according to World Bank data. Mexico is the 14th largest.)

If you’re the US, you might note that imports from Mexico before the pandemic (2015-19; 3.05 million mt annual average) were lower than those after the pandemic (2021-23; 4.31 million mt annual average).

But if you’re Mexico, you could make a similar case about US exports. The US from 2015-19 exported an average of 3.41 million mt of steel per year to Mexico. That figure averaged 3.83 million tons from 2021-23.

Melt matters, and so do stories

The US might say that for Mexican-origin steel, the bigger problem is that much of it was melted and poured outside of the country. That’s true. It’s in black and white on the Commerce Department’s “Melt and Pour Dashboard.” But the same criticism could be leveled against Canada.

I’m not sure how this one will settle out. The domestic industry – or certain portions of it – are clearly making their voices heard all the way to the White House on this issue. I don’t know that there is an equivalent (or equivalently effective) lobbying effort on the Mexican side of the ledger.

Sound familiar? It reminds me of the situation on a variety of issues – whether one is talking the impact of duties on steel consumers or Nippon Steel’s megadeal for U.S. Steel. The US steel industry has passionate voices supporting it – whether that be unions, trade associations, executives, or individual politicians.

There does not seem to be similar passion when it comes to steel buyers or foreign steelmakers. There almost seems to be an idea among foreign steelmakers and domestic consumers that ‘Hey, the numbers are on our side, so we’ll win.’”

But steel, like politics, is only partly about data. It’s also about emotion, about stories. When will other parties, whether consumers or foreign steelmakers, learn to craft narratives like the ones that allow domestic mills to punch above their weight in policy circles? And what might those stories look like?

I’d be curious to know your thoughts. And in the meantime, thanks to all of you from all of us at SMU for your continued business.

Michael Cowden

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