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Mexico: aluminium tariff sends out shock waves

On April 22, the Mexican government imposed import tariffs on some 544 products to protect domestic industry. The shock was primary aluminium being slapped with a 35% tariff even though Mexico does not produce the metal. Aluminium billet, of which there is some domestic production but insufficient to meet demand, was made subject to a 20% tariff.  

Countries with a trade agreement with Mexico are exempt from these tariffs. However, those countries are not the leading suppliers of aluminium to Mexico. Therefore, companies with contracts for primary had to review whether traders could swap units for exempt origins, with the delay of shipments/adjustment in costs that implies. On the scrap side, some buyers chased material aggressively, especially grades that could be used as a substitute for primary. Others decided to wait until they could assess this new tariff’s implications or to see whether the government would backtrack.  

Aluminium associations have approached the government to request the removal of primary aluminium from the tariff list. While there is great hope the authorities will do this to avoid the collapse of the domestic industry, the tariff has yet to be removed at the time of writing.

This experience will surely make some companies increase their commitment to scrap as a hedge against trade tensions that are becoming more common with each new day. As policy and tariff volatility is clearly in the air, one risk is a knee-jerk reaction from Mexico of imposing a tariff on scrap exports in a bid to help Mexican consumers procure enough units. As has been shown time and again, this would not be efficient and would have a negative impact on the recovery of recyclable metals.  

On May 2, the US Department of Commerce imposed preliminary anti-dumping rates on imports of Mexican extrusions ranging from 9.18% to 82.03%. Surprisingly, China and Vietnam were handed lower rates, although American companies have usually accused those countries of unfair competition. The rates may change when a final decision is made in September. The Mexican government has not yet responded to this announcement and so it is not clear whether it will impose some kind of retaliatory tariffs since Mexico imports more extrusions than the volume it exports to the USA.  

Mexico will hold Presidential elections on June 2. With the two main candidates being women, the only certainty is that Mexico will have its first female President. The candidate leading in the polls belongs to the official party and her promise is to continue along the same route as the current government. The other candidate comes from a coalition of opposition parties that, in theory, have very different ideologies. In terms of the geopolitical scenario, it can be expected that the official candidate will continue to maintain a more neutral stance on world conflicts whereas her opponent would try to adopt an international policy that creates less friction with the USA.