Trade Cases
Leibowitz: The Mexican steel import “surge”—and what to do about it
Written by Lewis Leibowitz
September 22, 2024
US presidential campaigns frequently sport an “air of unreality.” No more so than the 2024 campaign, where superlatives fly around like mosquitos.
Steel trade has been a feature of political discourse for at least half a century now. Just last week, it proceeded to a new level of “unreality.”
Four senators – Bob Casey (D-Pa.), Sherrod Brown (D-Ohio), Marco Rubio (R-Fla.), and Mike Braun (R-Ind.) – wrote a “bipartisan” letter attacking Mexican exports of steel to the United States. They framed it as a “surge” in US steel imports from Mexico. To address this “surge,” the Senators urge the imposition of 25% tariffs on all steel imports from Mexico.
The import data don’t support the “surge” theory
The statistics reveal that imports from Mexico declined 9.5% from 2023 (January-July) compared to the same period in 2024. Total steel imports into the US from Mexico declined more than 10% from 2022 to 2023.
The letter cites a “surge” of 500% from a “base period” of 2015-2017 for imports of steel conduit from Mexico. This number is not supported by import statistics either. Imports of conduit (HTSUS number 7306.30.5028) from Mexico averaged $269,000 from 2015-2017. But almost all of those imports occurred in 2015.
The 2023 number was a bit less than $1.1 million of conduit imports, which is about three times the volume in the 2015-2017 period. But this is not a major amount of steel. It accounts for 0.001% of total US steel imports from Mexico of $11 billion.
A flimsy case against China
The senate’s letter asserts a “surge” from Mexico but lacks evidence to support it. The letter also asserts that the increase in steel imports (or even the increase in conduit imports) results from Chinese-financed manufacturing in Mexico.
Surely there has been some. But it is far from clear where increased steel imports come from. The senate letter assumes that China is the cause of the increase. I, for one, would like to see a lot more evidence before drawing conclusions.
The letter does not directly accuse Mexico of permitting steel made in China to be used in Mexico. In July, the Biden administration ruled that, to be exempt from the Section 232 steel tariffs, steel processed in Mexico must be “melted and poured” in North America. But that was not enough for the senators. They want all steel from Mexico to be hit with 25% tariffs. Why? Just in case the steel is “melted and poured” in Mexico but is produced by companies that could benefit Chinese investors.
US Customs has identified revisions to the Customs entry form to reveal in what country steel used in manufacturing was melted and poured. In the abstract, there should be more facts rather than fewer facts. But the availability of that information will be harder to come by the further down the production chain the imported products are.
Even if this were “bad,” the punishment does not seem to fit the “crime”. The letter implies, as several news articles have said, that the country of origin of imported products should not necessarily determine the tariff treatment. Instead, if interests from a “bad” country benefit from production and exports from a friendly country, the traditional rules that assign the country of origin based on the location of production should now be overturned. (Note that China and Russia top the current list of “bad” countries.)
In favor of… what?
What level of Chinese investment should determine whether we punish companies in Mexico because there are Chinese investors?
In March, Sen. Tom Cotton (R-Ark.) introduced legislation to reimpose the 25% tariffs on Mexican steel. He claimed that Mexico was in “material breach” of the Joint Statement of May 2019 regarding monitoring of shipments from third countries through Mexico and into the United States. The senate letter supports passage of this bill. But its chances of becoming law are extremely thin. That’s because the president is likely to veto it due to its impingement on the president’s authority to conduct foreign policy.
In short, the evidence presented so far does not indicate that Mexico tolerates massive fraudulent transshipment of Chinese steel (or even steel not melted and poured in North America). While there may well be such fraudulent transshipments, it appears very unlikely that the volume of transshipment is significant to steel trade. The appropriate way to handle this fraudulent activity is to prosecute it, not impose tariffs across the board on innocent and guilty alike.
The push for more restrictions seems more political than economic. It is another sign (if we needed one) that close elections can result in very bad policies. And that those policies are aimed mostly at gaining a few votes.
American manufacturing, like it or not, depends on global commerce as well as domestic commerce. Many manufacturing companies rely on foreign sources. That’s not only because they may be cheaper but also because they are better thanks to reliable delivery or to higher quality or consistency of products.
Congressional letters get headlines. But they are not guaranteed to be accurate or wise, especially during election season.
Editor’s note
This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.
Lewis Leibowitz
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