New U.S. Tariffs on Mexican Imports, and Rising Chinese Influence

The Aluminum Monthly Metals Index (MMI) experienced a notable decline of 4.67% from June to July. Prices continued their downward trend until mid-June, hitting their lowest point since mid-April, culminating in a 6.86% drop over the month. Although prices have stabilized somewhat since mid-June, the overall market bias remains negative.

U.S. Imposes 10% Tariff on Mexican Aluminum Imports

In a move to combat Chinese dumping, the White House announced on July 10 a 10% tariff on specific aluminum imports from Mexico. This tariff applies to aluminum products not “melted and poured” in the U.S., Mexico, or Canada. The primary aim is to curb the influx of aluminum indirectly routed through Mexico from countries like China, Russia, Belarus, or Iran.

U.S. Aluminum Imports: Mexico vs. China

The new tariff regime marks a significant policy shift. Back in 2018, Mexico imposed retaliatory duties on U.S. products following U.S. Section 232 tariffs on steel and aluminum. However, the 2019 U.S.-Mexico-Canada Agreement (USMCA) exempted Mexico, effectively replacing NAFTA and leaving a loophole that countries like China exploited to bypass U.S. duties by routing aluminum through Mexico.

Despite these new tariffs, their immediate impact on U.S. aluminum prices is expected to be minimal. Mexican aluminum imports have averaged just 1.29% of total U.S. imports since 2018, whereas China accounts for approximately 3.9%.

Intent and Impact of the Tariffs

U.S. Trade Representative Katherine Tai clarified that the tariffs are designed to close a significant loophole left by the USMCA. Given the relatively small volume of aluminum imports from Mexico, these tariffs appear to be more of a preventive measure against potential surges rather than a response to existing high volumes. It is estimated that only about 6% of Mexican aluminum imports will be affected.

China has a history of seeking alternative routes into the U.S. to circumvent duties. The new tariffs do not cover many end-use aluminum products, allowing continued indirect trade. Increased trade between China and Mexico has significantly boosted Mexico’s total exports, with Mexico surpassing China as the top exporter to the U.S. in 2023. Notably, Chinese container exports to Mexico surged nearly 60% year-over-year in January 2024. In retaliation, Mexico imposed tariffs ranging from 5% to 50% on various products from countries without a Free Trade Agreement, including China.

Chinese Investments in Mexico

Despite Mexican tariffs aiming to reduce Chinese imports, Chinese manufacturing investments in Mexico have soared. This trend underscores the complexities of isolating China from global supply chains amid the ongoing trade war. According to the Financial Times, March saw the announcement of at least 41 new Chinese manufacturing and logistics projects in Mexico, the highest number since 2003.

Chinese Primary Aluminum Output Reaches New High

Chinese overcapacity continues to pose a significant deflationary threat to the global aluminum market. Despite tariffs, China’s primary aluminum output hit an all-time high in May, accounting for nearly 60% of the world’s aluminum production. This unprecedented production level continues to exert downward pressure on global aluminum prices. Chinese subsidies offer local producers a substantial competitive edge, influencing global markets. Countries not imposing tariffs on Chinese aluminum remain vulnerable to China’s market dominance.

Stay Informed and Manage Costs

In conclusion, the aluminum market is facing significant changes and challenges. Understanding these dynamics and leveraging reliable resources like Paramount Extrusions can help businesses navigate this complex landscape and secure their supply chains against international uncertainties.