Steel and aluminum tariffs, a blow to the economies of Canada and Mexico and the Free Trade Agreement

Donald Trump’s last step in the tariff war already undertaken on a global scale advises an unprecedented blow to the T-MEC, the treaty in force since 2020 that regulates commercial relations between the United States, Mexico and Canada. The imposition of a 25% lien to all imports of steel and aluminum announced on Monday, a measure well received by US manufacturers who oppose cheap foreign metals, not only has in question the North American free trade market , but it is a tsunami In full rule for the economies of the main steel exporters, which are precisely Canada and Mexico, in addition to Brazil, which in 2024 became the second supplier of that alloy. The continuity of the T-MEC, which must be renegotiated next year, is thus suspended while diplomatic tensions are multiplied.

For Canada, the respite lasted little. Last Monday he raffled an economic war with his main commercial partner, the United States, a country with which he shares, at least until now, a solid bilateral relationship carved in proximity and in a common history. Trump threatened them with the imposition of 25% tariff on the shared border. Just seven days after that strip and loosen, the announcement of more 25%tariff of the White House, which aspires to convert Canada, however unlikely it turns out that something like this happens, in state number 51 of the Union.

A business of 11.2 billion dollars

Canada is the main supplier of the United States both of steel (with a business of 11.2 billion dollars, is ahead of Brazil, Mexico, South Korea and Germany) and aluminum (9.5 billion) list that heads with, in that order , 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.

In statements to the Canadian media, federal and provincial politicians throughout the spectrum, united before Trump’s “matonism”, they affected Monday in the same message: that tariffs are not only bad for Canada, but also for industries and consumers Americans, whose costs will increase. The effects promise to be felt especially in the car industry, organized around the border that separates Mistigan, and its main city, Detroit, and the province of Ontario. There are constant commercial exchanges, and the pieces of cars that cross the dividing line again and again. How these new tariffs will affect these factories is still an unknown.

During his first presidency, Trump imposed in 2008 tariffs on aluminum (25%) and steel (10%), which exempted Canada and Mexico. This time, clemency with neighbors has not reached, at least for the moment.

The specialists warn that the arrival of the new tax will impact the flotation line of the Mexican economy and in some of its strongest sectors such as automotive, electronic, electric or pharmaceutical chemist, which use steel and Aluminum as key input. “The tariff would be increasing costs to the production, assembly and final assembly, which will be reflected in the consumer prices of the two countries,” says Ignacio Martínez Cortés, coordinator of the Laboratory of Commerce, Economics and Business of the National Autonomous University of Mexico (UNAM). The industries on both sides of the border are integrated through supply chains that benefited from the absence of tariffs of the majority of goods under the protection of the T-MEC.

In July 2024, the Biden government imposed a 25% tariff on steel and 10% to aluminum that came from Mexico and that it had not been molten or poured into that country, under the argument that most came from China to try to Avoid taxes. “Approximately 30% of the steel that exports Mexico to the United States is of Chinese origin,” says Martínez Cortés. The measure then generated friction between the López Obrador government and the steel entrepreneurs. The United States has demanded that its most transparency partners in the origin of steel products from Mexico. They accuse China of committing dumping and to sell surpluses of 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 to move. So far, the Mexican president has adopted a measured approach to Trump’s tariff threats and has called for calm. The Secretary of Economy has held meetings with leaders of the steel industry in recent weeks and assured that he will work with them to strengthen national production as part of the government’s investment strategy.

The arrival of Donald Trump has tensioned even more, in any case, the framework of the T-MEC and although it is within the margins according to the imposition of tariffs, it is likely that it is one of the main themes in the renegotiation of the treaty In 2026. “In less than seven months Mexico will have two percentages of taxes to pay on steel, first with Biden and now with Trump,” says the expert who fears the arrival of the threat of new tariffs, after 1 of 1 of March. “If the United States gets to Mexico a generalized 25% tariff to all exports, it would impact 7% of GDP and we will enter a recession,” says the specialist.

Something similar points Fitch Ratings. The qualifier warns of commercial risks for Mexico after the arrival of 25% tariffs on all products. “It would cause a recession in Mexico in 2025 and reduce the production of the country 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 even be Greater given the second round effects, ”he says. Mexican exports to the United States exceeded 500,000 million dollars in 2024.

Offensive against the first Latin American power

What worried Brazil the most were the tariffs about steel, since it is the second supplier of that material for the United States behind Canada and after having recently surpassed Mexico. In 2024 he sold 5.7 billion dollars in steel to the United States, practically half of the exports of that material.

In aluminum, on the other hand, it is only the twelfth supplier. Therefore, the business volume is not large. This would be the first case in which the tariff offensive undertaken by Donald Trump affects the first economic power of Latin America.

Brazil has adopted, anyway, a most cautious posture. Luiz Inacio Lula da Silva’s government maintained that the announcement would be pronounced once, but insists that he is open to dialogue. The negotiation is in the DNA of Brazilian diplomacy. That is the path that he chose to resolve the crisis of deportations for the wives that the immigration authorities place the branched Brazilians in feet, hands and waist.

The fear in Brazil is that, in addition to confirming tariffs on steel, iron and iron ore are also imposed. In that case, the damage would be more serious.