USMCA Update: Trilateral Deal Might be Elusive
Executives and panelists at this week’s Global Steel Dynamics Forum generally agreed that when it comes to renewing the United States-Mexico-Canada Agreement (USMCA) on trade, the US and Mexico are closer to being aligned. Preliminary talks between Mexico and the US were said to have been more productive around steel, aluminum and autos, but only informal discussions have taken place with Canada, according to Alan Price, partner at Wiley law firm. The official, first joint review begins July 1.
In keynote remarks, Cleveland-Cliffs CEO Lourenco Goncalves suggested that Mexico understands what is at stake better than Canada. “Mexico is simple,” he said, “Shut down the back door (for transshipped steel imports). Canada talks a good game of ‘Fortress North America,’ but doesn’t follow through.”
Mark Millett, CEO of Steel Dynamics, is not expecting a trilateral deal as of now. “It looks like the US will make a deal with Mexico,” he told the GSDF audience.
In defense of Canada, Catherine Cobden, the outgoing president and CEO of the Canadian Steel Producers Association said during a panel discussion that her country takes steel trade enforcement very seriously. She pointed to the Canadian government’s many trade measures, which are aligned very much with the USA approach, such as the many antidumping and countervailing duty actions taken against 31 countries.
Canada has also implemented a series of tariff rate quotas (TRQs). In short, these allow for the import of pre-determined volumes at lower duties.
But the USA’s Section 232 tariffs, “don’t work perfectly for every region,” she said.
Mexico’s priority is getting the pact renewed, according to panelist David Zabludowsky, deputy director at IQOM Strategic Advisors. He contended that while no renewal may not be the end of the world, there would be a cost to pay if that happens. “Investments would be delayed until there is clarity on the rules of the road.”
He also said Mexico’s top concern is the 232 tariffs. “There should be ample chance for some changes,” he said.
Steel Manufacturers Association President and CEO Philip Bell said: “I think there are several very good reasons that we are keeping the 232 tariffs in place and that we are seeking significant changes to USMCA.” He explained that when looking at the area, the United States “is responsible for 85% of the Gross Domestic Product generated within the USMCA region.”
He added: “So it shouldn’t come as any surprise if President Trump might be sitting in the oval office going, ‘Okay, we’re responsible for 85% of the GDP, then why on Earth, are we having such high trade imbalances with Canada and Mexico?’”
Bell continued: “He can also be saying, ‘Well, if we’re responsible for 85% of the GDP in the region, why isn’t there more American steel required in the domestic content requirements for automotive and other manufactured goods?’ He’s probably also thinking if we’re responsible in the US for 85% of the GDP in this trading bloc why aren’t there more American steelmaking jobs and American manufacturing jobs. So, if you’re President Trump, that is a very legitimate reason for keeping the 232 tariffs in place.”
Bell maintained that the 232 tariffs allow the United States to negotiate from a position of strength. “This administration firmly believes that the ability to sell your steel in the United States is not a right. It’s a privilege, and it’s time for our trading partners to understand and appreciate that privilege, and to take their trading relationship with the United States more seriously.”
He contends that both Canada and Mexico “need to get tougher, and they need to align their trade policies with trade policies that work like the 232 tariffs and the 301 tariffs.”
On the broader issue of trade policy, Cliffs’ Goncalves noted that it really doesn’t even matter who the next US president is. “No Republican, no Democrat is going back to free trade,” he said.