Donald Trump’s latest move in the global tariff war deals an unprecedented blow to the USMCA, the treaty in force since 2020 that regulates trade relations between the United States, Mexico and Canada. The imposition of a 25% tax on all steel and aluminum imports announced on Monday — a measure welcomed by American manufacturers who oppose cheap foreign metals — has not only called into question the North American free trade market, but is a full-blown tsunami for the economies of the main steel exporters, namely Canada and Mexico as well as Brazil, which in 2024 became the second supplier of this alloy. The future of the USMCA, which must be renegotiated next year, is now in question while diplomatic tensions multiply.
For Canada, the respite was short-lived. Last Monday, it weathered an economic war with its main trading partner, with which it had, at least until now, a solid bilateral relationship built on geographical proximity and a shared history. Trump threatened Canadians with 25% tariffs on their products before granting them a one-month reprieve after a call with Prime Minister Justin Trudeau, who, in exchange, promised measures to contain human and fentanyl trafficking at the border. Just seven days after that tug-of-war, the announcement of more tariffs of 25% on aluminum and steel brought Ottawa back to the harsh reality that the rules of the game are radically different with the new tenant of the White House, who aspires to make Canada, as unlikely as it may sound, the 51st State of the Union.
A $11.2 billion business
Canada is the United States’ largest supplier of both steel (with a turnover of $11.2 billion, ahead of Brazil, Mexico, South Korea and Germany) and aluminum ($9.5 billion), with the United Arab Emirates, Russia and China at a considerable distance. Quebec is the Canadian province that produces the most aluminum. As for steel, there are 13 plants in five provinces: Alberta, Saskatchewan, Manitoba, Ontario and, again, Quebec.
Speaking to Canadian media, federal and provincial politicians from across the spectrum, united in the face of Trump’s “bullying,” hammered home a single message Monday: that tariffs are not just bad for Canada, but also for American industries and consumers, who will have to pay higher prices. The effects promise to be felt especially intensely in the auto industry, which is organized around the border that separates Michigan and its main city, Detroit, from the province of Ontario. Trade is constant there, and auto parts repeatedly cross the dividing line. How these new tariffs will affect those factories is still unknown.
During his first term, Trump imposed tariffs on aluminum (25%) and steel (10%) in 2008, exempting Canada and Mexico from them. This time, there are no exceptions, at least for now.
As for Mexico, experts warn that the new tax will have a direct impact on the economy’s bottom line and on some of its strongest sectors, such as automotive, electronic, electrical and chemical-pharmaceutical, which use steel and aluminum as key inputs. “The tariff would increase costs in production, assembly and final assembly, which will be reflected in consumer prices in both countries,” says Ignacio Martínez Cortés, coordinator of the Commerce, Economics and Business Laboratory at the National Autonomous University of Mexico (UNAM). Industries on both sides of the border are integrated through supply chains that benefited from the absence of tariffs on most goods under the USMCA.
In July 2024, the Biden administration imposed a 25% tariff on steel and 10% on aluminum arriving from Mexico that had not been smelted or poured in that country, arguing that most of it came from China in an attempt to avoid taxes. “Approximately 30% of the steel that Mexico exports to the United States is of Chinese origin,” says Martínez Cortés. The measure generated friction between the Andrés Manuel López Obrador government and steel companies. The United States has demanded more transparency regarding the origin of steel products from Mexico. They accuse China of selling surplus metal abroad at prices below those established in the market.
For her part, President Claudia Sheinbaum decided to wait for the announcement of the measure before making her move. So far, the Mexican president has adopted a measured approach to Trump’s tariff threats and has called for calm. The Mexican Secretary of Economy has held meetings with leaders of the steel industry in recent weeks and assured them that he will work to strengthen national production as part of the government’s investment strategy.
The return of Trump has further strained, in any case, the framework of the USMCA. Although imposing tariffs falls within the framework of the agreement, it is likely to be one of the main issues in the renegotiation scheduled for 2026. “In less than seven months, Mexico will have to pay two percentages of taxes on steel, first with Biden and now with Trump,” says the expert, who fears the possibility of new tariffs after March 1. “If the United States were to apply a generalized tariff of 25% to Mexico on all exports, it would impact 7% of the GDP and we would enter a recession.”
Fitch Ratings makes a similar assessment. The rating agency warns of trade risks for Mexico if 25% tariffs were to be applied on all products. “It would cause a recession in Mexico in 2025 and reduce the country’s production by 3.0 percentage points by 2026. However, tariff impacts are difficult to predict given the complexity of supply chains between the United States and Mexico and could be even greater given second-round effects,” it notes. Mexican exports to the United States exceeded $500 billion in 2024.
Offensive against Brazil
Brazil was most concerned about steel tariffs, as it is the second-largest supplier of steel to the United States after Canada, having recently surpassed Mexico. In 2024, it sold $5.7 billion worth of steel to the United States, almost half of its overall steel exports. In aluminum, on the other hand, it is only the 12th supplier.
This would be the first case in which the tariff offensive launched by Trump affects the leading economic power in Latin America.
Brazil has, however, adopted a very cautious stance. The government of Luiz Inácio Lula da Silva has maintained that it will make a statement once the announcement is made official, but insists that it is open to dialogue. The fear in Brazil is that, in addition to confirming the tariffs on steel, additional tariffs on iron and iron ore will be imposed. In that case, the damage would be more serious.
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Publish date : 2025-02-10 22:52:00
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