It’s hard to keep track of President Trump’s on-again, off-again trade policy, but one firm truth is that, by placing tariffs on Mexico and Canada, he risks destroying the USMCA, a free-trade deal that he called “the fairest, most balanced, and beneficial trade agreement we have ever signed into law.”
The bitter irony is that by directing tariffs at his North American partners in the USMCA, the President will only make China, the source of the world’s steel crisis, an even bigger winner than it is today.
In the face of U.S. steel tariffs, Mexico – rather than retaliating like other countries -- has engaged in negotiations with the U.S. over the 25% tariffs Trump placed on steel on March 12. I have ideas on to broaden those talks o include ways Mexico and the U.S can jointly deal with the Chinese threat, which involves not only economics but national security.
First, understand what that threat entails. The production capacity for steel worldwide exceeds demand by about 600 million metric tons (MMT) – an enormous amount when you consider that about 1,900 MMT of steel are produced annually.
Because of this excess capacity, global steel prices are depressed, and U.S. companies can’t earn the profits necessary to make capital investments to modernize. So the country that created the excess capacity, mainly through government subsidies, continues to build its dominant position.
That country is not Mexico or Canada. It’s China. “China is flooding global markets with cheap, heavily subsidized exports—undercutting producers in the United States, Europe, and Asia,” write Philip Luck and Evan Brown of the Center for Strategic and International Studies.
China produces more than half the world’s steel today – over 1,000 MMT. By contrast, North America combined produces 105 MMT despite having a gross domestic product that is roughly twice as large. Seven of the 10 biggest steel companies in the world are Chinese; none is American.
China has managed to keep exports flowing despite high tariffs for two reasons. First, it is such a low-cost producer that it can shrug off 25% or even 50% duties. Second, China ships steel to its own regional partners, which face lower tariff rates. Those partners – many of them, like Vietnam and South Korea, members of the Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP) free-trade bloc -- then ship the steel throughout the world.
According to data from the American Iron and Steel Institute, compiled from U.S. Census reports, the big increases in U.S. steel imports last year came from Asia, especially Vietnam, whose exports to the U.S. rose 143% compared to 2023. Vietnam is the number-one importer of Chinese steel. By contrast, steel exports coming from Canada fell 5% last year; from Mexico, exports dropped 16%.
Based on its current capacity, the U.S. simply cannot produce enough steel to meet domestic demand. In 2024, therefore, it imported 29 MMT. Of that, just 3.5 MMT came from Mexico. Meanwhile, Mexico imported 4.4 MMT from the United States. Yes, despite all the commotion, the U.S. runs a trade surplus in steel with Mexico, and nearly two-thirds of U.S. steel imports come from outside North America, primarily from Asia.
A sensible U.S. trade policy would seek to make North America self-sufficient in steel. A trade war – with higher tariffs on both U.S. imports and exports – would harm North America and leave Asian countries, as low-cost, subsidized producers, winning even more market share.
This sensible policy would create a more powerful North American market for steel by replacing the 10 million tons from China and its surrogates with steel from Mexico and Canada under the free- and fair-trade terms of the USMCA.
In its current negotiations, the U.S. should ask Mexico to raise its tariffs on Chinese steel from the current average of about 30% to current U.S. levels of closer to 75%. Mexico should raise tariffs on China’s surrogates like Vietnam as well.
The North American partners should enforce a tough regime that would prevent any steel not melted and poured in their countries from taking advantage of zero tariffs under the USMCA. Customs control and transparency mechanisms should be toughened to combat transshipment and fraud. And the partners should work jointly on a capital investment and job-creation program in the region to replace exports coming from other countries.
All of these measures require Mexico, especially, to take bold steps that could jeopardize Chinese investment– a true sacrifice. The U.S. should reward those steps by removing steel tariffs and pledging to make the USMCA even better.
If negotiators adopt a China-focused solution of this nature, they can help build a stronger North American steel industry without touching off a horrific regonal trade war.
