President-elect Donald Trump's plans to introduce a 25pc tariff on all imports from Mexico and Canada could increase costs for US steelmakers and manufacturers, but so far lacks clarity on its application around existing steel tariffs and trade agreements.
Trump pledged on social media earlier this week to use an executive order to implement a widespread tariff on imports from both countries on 20 January, along with an additional 10pc tariff on all imports from China.
The import tax on Canada and Mexico could have sweeping ramifications on the steel and manufacturing industries across the three North American countries.
The additional import tax on China, which could lift current tariffs to as high as 60pc for all steel imports, would likely have minimal effects on US steel and scrap markets because of already-low import volumes from the nation.
Despite the potential havoc the tariffs could have on supply chains,many market participants are waiting to react until more details about the plan are formalized.
Some market participants expect that the list will be refined, and others view the pledge as a negotiating strategy for broader trade agreements, but some US scrap importers are beginning to lightly sketch out what the tariff would mean for sourcing raw materials.
Lacking clarity
Trump's announcement did not specify how the proposed import tax would interact with the existing Section 232 tariffs on steel and aluminum, which were imposed by his first administration in 2018 under national security concerns.
Canada, Mexico and a few other key countries have remained exempt from the Section 232 tariffs, while other countries have seen tariffs removed and a non-tariffed quota system imposed.
Similarly, if the US implemented tariffs on imports from Canada and Mexico it would be in violation of the US-Mexico-Canada Agreement (USMCA) that was also put in place by Trump's first administration in 2020.
The proposed tariffs would equate to $2.1bn in additional costs for volumes of steel products imported this year, based on the latest preliminary data from the US Department of Commerce, and analysis of Canada and Mexico volumes.
Canada and Mexico have exported 6.87mn metric tonnes (t) of steel products for consumption to the US with a value of $8.25bn year to date October, down from the 7.8mn t of products with a $9.65bn value imported the same period a year earlier, according to the latest available preliminary data from the US Department of Commerce.
Scrap impact
The import tax could have a significant impact on some US steelmakers' raw material pricing and sourcing strategies because Canada and Mexico are the two largest shippers of ferrous scrap into the country.
The US has imported about 5mn t/yr of ferrous scrap over the last three years and ferrous scrap import volumes year to date September have so far totaled 3.5mn t, down 8pc from the same period last year.
Canada has shipped 75pc of all ferrous scrap exports into the US, including stainless scrap and alloy scrap, over the last 10 years, while Mexico has shipped 12pc of the total over the same period.
US steelmakers in the upper Midwest and Detroit region would be particularly impacted by the import tax because of the volume of prime and shred sourced from Canada.
The US has imported a monthly average of 60,000t of #1 bundles and 44,000t of shred from the country since 2013.
One US steelmaker said prime grades could see the greatest disruption because they are traded through longer-term, index-based contracts which might not have provisions regarding boarder tax changes because of assurances under the USMCA.
Some Canadian traders said that if the tariff went into effect, the costs would be passed through to US steelmakers which would likely prompt them to cut back on volumes. This would increase regional demand for scrap in the US and could support a shift in flows from the east coast inland.
Meanwhile, the timing of the US domestic ferrous scrap trade and the potential implementation of the import tax could also create challenges for some mills in January.
One US steelmaker said that it would initially try to split the costs with Canadian dealers in January but work to establish a more formal agreement for the remainder of 2025 if the tariff were implemented.
