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Why Canada and Mexico May Be Big Winners From Steel Tariffs

Why Canada and Mexico May Be Big Winners From Steel Tariffs
by Benn Steil and Benjamin Della Rocca

As the Trump Administration prepares to slap 25 percent tariffs on imported steel this Friday, March 23, two countries are set to be big winners.

Back in 2002, President George W. Bush imposed 30 percent import tariffs on most steel products, exempting Canada and Mexico. While also exempting some developing countries with small market shares, this move stymied most of Canada and Mexico’s non-U.S. competition. The result, as our main graphic above shows, was a huge boost to their share of U.S. steel imports, from 24 percent to 35 percent. Moreover, after the Bush administration repealed tariffs at the end of 2003, Canada and Mexico sustained the larger share of the U.S. market they had taken over the previous twenty-two months—as we show in the small inset graphic. The Bush “tariffs . . . saved the Mexican steel industry,” according to the CEO of steelmaking equipment manufacturer Magneco/Metrel, who testified at a 2002 House hearing.

Now, Canada and Mexico are set to win big again. So far, they are the only countries which Trump has exempted from his tariffs, giving them a big leg up against non-U.S. competitors. Canada is currently America’s number one foreign supplier of steel, at 16.7 percent of total imports; Mexico is number four, at 9.4 percent. As the experience of the Bush tariffs shows, some of the boost in U.S. market share the two can anticipate should, given the stickiness of supply chains through time, endure beyond the eventual elimination of the Trump tariffs.

The president is using the exemptions as leverage in NAFTA reform negotiations, so it remains to be seen how long the NAFTA-partner advantage will last. But for now, when it comes to steel, at least, Trump is set to Make NAFTA Great Again.