1/21/2024
The trade dynamics between the United States and Mexico are currently entangled in a complex web, centered around aluminum imports. This scenario is further complicated by the involvement of other nations, particularly Russia, against whom the U.S. has imposed significant tariffs. This article seeks to unravel these complexities and explores the potential consequences and future actions in this intricate trade situation.
In response to Russia's military actions in Ukraine, the United States has implemented a 200% ad valorem tariff on aluminum produced in Russia, part of a broader strategy to curtail Russia's economic capabilities while supporting American industries. These were passed under 19 U.S.C § 1862, the Trade Expansion Act and the same statute former President Trump used to pass a 10% ad valorem tariff on Russian aluminum products. These measures, however, are challenged by the complexities of global supply chains, particularly with the possibility of aluminum being rerouted through third countries to circumvent U.S. tariffs. This situation underscores the difficulties in enforcing such tariffs and ensuring compliance.
The role of Mexico in this trade equation has become increasingly significant. There is growing speculation that aluminum from sanctioned countries like Russia might be entering the U.S. through Mexico, effectively bypassing U.S. tariffs. The possibility of such triangular trade patterns raises concerns about the origins and transparency of aluminum imports from Mexico. This scenario is not unprecedented, as similar instances of triangular trade have occurred in the past. For example, Chinese aluminum producer China Zhongwang Holdings Ltd. previously used Mexico as a conduit to move tariff-free metals into the U.S. Furthermore, Russian exporters have often found avenues around Western tariffs. In 2022 post-tariff application, Russian exports of Alumina and Bauxite (the primary components of aluminum) were up 741% and 17% respectively with China.
Recognizing these challenges, U.S. Trade Representative Katherine Tai and Mexico's Secretary of Economy Raquel Buenrostro have engaged in discussions to enhance steel and aluminum trade monitoring efforts. Their collaboration focuses on addressing the surges in Mexican exports of these metals to the U.S. and improving transparency regarding Mexico's imports from third countries. This partnership reflects a joint effort to combat potential trade malpractices and ensure fair trade between the two countries. However, efforts have been considerable despite the fact that Mexican trade authorities stopped reporting official trade statistics of imported alumina and other raw materials in late 2022.
Furthermore, at the North American Aluminum Trade Associations summit in Mexico City it was noted that since the removal of Section 232 tariffs in favor of the USMCA both Canada and the United States have enhanced or created new aluminum import monitoring systems, but Mexico has not. In order to prevent a repeat of the US and Mexico becoming victims of a significant aluminum transshipment scheme (consider the 2010's when massive volumes of Chinese aluminum billets were intentionally disguised to evade tariffs) Mexico must upgrade their monitoring systems. The application of anti-dumping/counter-vailing duties should be a last option to be exercised when domestic industry is harmed, but only if your monitoring systems detected such egregious violations. Retroactive AD/CVD doesn't help if they're implemented far after the fact, early detection is always the better option.
The market and industry reactions to these developments have been notable. Market speculations about potential U.S. actions against Russian aluminum have influenced global prices, with companies like En+ Group, which controls Rusal, warning about potential market disruptions and economic consequences. U.S. aluminum producers like Alcoa have been advocating for strict enforcement of tariffs against Russian aluminum to level the playing field and protect domestic industries.
Looking ahead, we can speculate on several potential actions that might unfold in response to these complexities. Enhanced monitoring and regulations could be implemented by the U.S. to more effectively trace the origin of aluminum imports. The U.S. may also consider extending its tariff policies to cover aluminum imports from Mexico if evidence of triangular trade practices is established, a move that could significantly impact U.S.-Mexico trade relations. Domestically, U.S. aluminum producers might increase production and lobbying efforts, influencing future trade policies. Finally, market players, including traders and manufacturers, are likely to adapt to the evolving trade landscape, seeking new supply chains and adjusting to potential cost increases.
In conclusion, the trade of aluminum between the U.S. and Mexico, with its potential connections to sanctioned countries like Russia, presents a complex and evolving puzzle. As the U.S. seeks to enforce its tariffs and uphold its economic sanctions, the role of Mexico as a trade partner is brought into sharp focus. The outcomes of these developments will have far-reaching implications for international trade, market dynamics, and geopolitical relations, underscoring the interconnected nature of global commerce in today's world.
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