The United States' steel and aluminium tariffs against Canada and Mexico remain in place despite the countries reaching a trilateral deal to replace the existing North American Free Trade Agreement.
“Canada and the United States reached an agreement, alongside Mexico, on a new, modernized trade agreement for the 21st Century: the United States-Mexico-Canada Agreement (USMCA). USMCA will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region,” US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland said in a joint statement on September 30.
Trade groups praised the agreement, satisfied that a trilateral deal was made. The United States and Mexico had reached a preliminary agreement on August 27, but the question of Canada’s participation to form a trilateral agreement had appeared murky.
“We are pleased that the agreement is trilateral, as the relationship between our three countries has been extremely beneficial for the steel industry and resulted in robust trade and investment in the region over the past 25 years,” American Iron and Steel Institute president and chief executive officer Thomas J. Gibson said in a statement on October 1.
“We are pleased with the changes in the rules of origin and automotive content requirements. We believe this is a key part of the modernization of the agreement and these new provisions will help promote the production and use of domestic steel,” Steel Manufacturers Association president Philip K. Bell said.
“Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered,” National Association of Manufacturers president and CEO Jay Timmons said.
Still, a number of market participants are likely to be left disappointed, with various trade groups and political bodies hoping that during the course of negotiations the US would lift the Section 232 tariffs on Canada and Mexico that have been in place since June.
Those tariffs boosted the P1020 Midwest aluminium premium and hot-rolled coil index to multi-year highs.
Fastmarkets AMM assessed the P1020 duty-paid premium at 20.25-20.75 cents per lb delivered to the Midwest on September 28. While that is down by 8.9% from the more than three-year high of 22-23 cents per lb in April, it is still more than double the 9.4-9.5 cents per lb at the start of this year.
Similarly, the Fastmarkets AMM hot-rolled coil index stood at $41.48 per hundredweight on September 27, down 9.5% from the nearly 10-year high of $45.84 per cwt in early July but still up by 27.1% from $32.63 per cwt at the start of this year.
Steel trade groups in Mexico and Canada last month had called on government officials to resolve the Section 232 tariffs while renegotiating Nafta.
The Congressional Aluminum Caucus, a bipartisan group of congressmen advocating for the US aluminium industry, also had lobbied for full exemptions from the aluminium tariffs without quotas for the two US-neighboring countries in a letter to Lighthizer last week.
US Commerce Secretary Wilbur Ross clarified that there would be no change to the Section 232 tariffs and provided no indication of whether they would be removed at all.
“[Section 232 tariffs] are separate issues from [the USMCA]. This is meant to be a fundamental revision of the relationships among the three countries. There are problems specific to steel and aluminium relating to our national defense, and at this point in time those stay the same. For that matter, there is also a provision in here that if we put in a [Section] 232 on automobiles in the future there will be an exemption essentially of current levels from within the Canadian [and] Mexican manufacturing [sectors]. So it not only so far has not touched the steel and aluminium tariffs, it tips its head to how we deal in the future if there is an automotive [Section] 232,” Ross said in an interview with Fox Business on October 1.
“There is no time line [on when tariffs on Canada and Mexico would be removed],” he said, when pressed on the permanency of these trade measures.
Still, the Canadian Aluminium Association told Fastmarkets MB that it is hopeful that the new USMCA will lead to a swift resolution of the dispute over the 10% US Section 232 aluminium tariffs.
Some also expect the Section 232 tariffs against Canada and Mexico will continue to be negotiated.
“Surprisingly, the aluminium and steel tariffs remain in place for now but we suspect that this will be the next order of business,” INTL FCStone analyst Edward Meir said in an October 1 research note.
While the USMCA deal does not alter the steel and aluminium tariffs, the deal will “make it harder for global automakers to build cars in Mexico as companies will need to spend more of their production hours in high-wage countries [such as the US],” he said. “It also preserved a trade dispute settlement mechanism sought by Canada to protect its industries from US anti-dumping tariffs.”