20 Jun

Mexico Ratifies USMCA: Did Section 232 Exemptions Help?

WRITTEN BY Mohit Oberoi, CFA


Yesterday, Mexico ratified the USMCA by an overwhelming majority. While the agreement was negotiated last year only, Section 232 tariffs have been an issue. Even as the USMCA was negotiated, the United States continued to charge Section 232 tariffs on aluminum and steel imports from Canada and Mexico.

Burning issue

The tariffs were an emotive and political issue in these countries and Canada wanted to protect its steel industry, which was hurt by tariffs. Notably, steel imports from Canada and Mexico have fallen this year amid the tariffs. Canada is the largest steel and aluminum exporter to the United States, while Mexico is the second largest steel exporter. Meanwhile, last month President Trump granted Section 232 exemptions to Canada and Mexico. The move led to a sell-off in steel players like U.S. Steel (X), AK Steel (AKS), and Nucor (NUE). However, the exemption was positive for Alcoa (AA) as the company was paying tariffs on the aluminum it shipped from its Canadian smelters to the United States. US steel stocks are outperforming the markets this month. U.S. Steel, AK Steel, and Nucor have respectively gained 28.3%, 33.1%, and 13%, so far in June. Alcoa is up 5.7% month-to-date. All these companies had hit 52-week lows last month amid the escalation in the US-China trade war.

Exemptions were an enabler

It would be fair to say that the Section 232 exemptions were an enabler in Mexico ratifying the USMCA. The Trump administration has also tried to put some safeguards in place so that imports from Canada and Mexico don’t surge after the exemptions. While these measures look positive, steel imports from Canada and Mexico could still rise. Read Steel Tariff Exemption, Will Safeguards Be Enough for more analysis.

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