President-elect Donald Trump has made implementing tariffs a cornerstone of his 2024 campaign, zeroing in on the US’ largest trade partners: Canada, Mexico and China.
Canada, Mexico and China. All eyes will be on inauguration day, January 20, when Trump takes office for the second time. After implementing Section 232 tariffs in his first term in 2018, Trump’s stance on tariffs has only gotten more aggressive, which poses potential risks for US trade relations.
What will the incoming president’s approach to tariffs mean for the US steel industry, the future of the United States-Mexico-Canada Agreement (USMCA) and US-China trade relations?
Mexico and Canada: trade war on the horizon?
The USMCA, a free trade agreement that replaced the North American Free Trade Agreement (NAFTA), has been repeatedly described by Trump as the “worst trade deal ever made”
In his presidential campaign, Trump called for the imposition of 25% tariffs on Mexican and Canadian imports, which, if implemented, would drastically affect trade relations with Mexico and Canada, Fastmarkets heard.
“It’s pretty clear that if we put tariffs on Canada and Mexico, they’re going to retaliate with tariffs on us,” Warren Maruyama, former general counsel of the Office of the US Trade Representative (USTR) under President George W. Bush, told Fastmarkets in an interview on December 12.
Maruyama was also a former White House staffer for President George H. W. Bush.
“We’re going to expect a comprehensive review of the USMCA agreement out of the new Trump administration, particularly how it treats steel and aluminium imports from Canada and Mexico,” Samir Kapadia, principal and chief operating officer at the Vogel Group, told Fastmarkets in an interview on December 13.
The Vogel Group is a bipartisan government affairs and consulting firm based in Washington DC
The review of the USMCA under the Trump administration could lead to the reinstitution of Section 232 tariffs on Canada and Mexico, Kapadia said, which originally exempts tariffs on the pair of nations..
Canada and Mexico are significant exporters of steel into the US, with the former importing 450,773 tonnes of steel, around 23.06% of the total volume of steel imported in November, according to data from the US International Trade Administration’s steel import monitoring system.
In the same month, Mexico exported 245,153 tonnes of steel to the US, representing 12.54% of total steel imports.
The environment of retaliatory tariffs is a “lose-lose situation”, Maruyama said. Although this might lead to the US producing more materials – such as steel – domestically, the country might lose some of its “most globally competitive” industries, he added, highlighting the automotive sector.
US auto industry likely to be disrupted
The tariffs against Canada and Mexico could cause a “high level of disruption” to the US auto industry, according to Maruyama.
“The American auto industry is a big exporter to Canada and Mexico. There are a lot of [car] parts and vehicles going back and forth across the US-Mexico and US-Canada borders,” Maruyama added.
Kapadia echoed that view: “Where you’re going to see the biggest pain points are at the sector level. The automotive sector is an industry that is uniquely menaced by these tariff concerns.”
The USMCA is slated for a formal review in 2026, six years after it entered into force. The parties will consider recommendations for revisions and decide whether to extend the agreement for another 16 years.
China a tariff target, too
Meanwhile, Trump has also threatened to impose an additional 10% tariff on all imports from China, a move that aims to curb the flow of illegal drugs into the US, according to the incoming President.
China is a smaller steel exporter compared to Canada and Mexico, exporting only 32,555 tonnes of steel, representing 1.67% of total steel imports to the US in November, US ITA data showed.
“We were fully expecting tariffs on Chinese imports to go up in 2025. The question is, will he decide to bifurcate tariffs into strategic versus non-strategic tariffs with China?” Kapadia said.
Trump is likely to be more inclined to implement tariffs on input materials in value chains, such as widgets used in finished products like household appliances, semiconductors, as opposed to increasing tariffs on retail and consumer-facing products, Kapadia said, which may play into consumers’ perception around inflation.
The threat to increase tariffs on the trio has garnered mixed reactions from the domestic steel industry.
What does this mean for the US steel industry?
While Trump’s promise to raise tariffs on imports from Mexico and Canada may strain trade relations, the domestic steel industry may reap some benefits of the approach.
Domestic steelmakers benefitted from the Section 232 actions that were first implemented in 2018, which resulted in higher steel prices and margins.
In the five years leading up the Section 232 actions, the average margin for hot-rolled coil production was slightly over $400 per tonne. From 2018 to September 2024, the average margin was nearly $640 per tonne, according to Fastmarkets’ analytics team.
“[Steel] prices will go up, and it’s going to be a good year for the [US] steel industry,” Kapadia said.
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