The US and Mexico are moving toward a deal to cut the 50% tariffs on steel imports that were imposed during Donald Trump’s presidency. This new agreement would set a limit on the amount of steel Mexico can export to the US, based on historical levels. The proposed limit is more flexible than rules from a 2019 agreement. The final decision still needs Trump’s approval. Mexico’s Economy Minister, Ebrard, believes the tariffs are unfair since the US sells more steel to Mexico than the other way around.

Possible Trade Improvement

This article discusses a potential improvement in trade between the United States and Mexico. They are close to changing the steel tariffs that were put in place by the last US administration. These tariffs of 50% on steel imported from Mexico were meant to protect the US steel industry. Now, both countries seem willing to ease these rules in exchange for new import limits. The new plan would replace the flat tariff with quotas, allowing Mexico to keep its steel exports to the US within set limits. These quotas would be based on past shipment levels, but the specific numbers have not been announced yet. Importantly, this limit would allow Mexican exporters to send more steel than they could under the stricter terms of the 2019 deal. Ebrard, representing the Mexican government, criticized the current tariff system as unbalanced, pointing out that the US exports more steel to Mexico than what Mexico sends back. This highlights a belief in Mexico that the current trade rules are unfair. For us, watching trends in commodity prices, this change—once confirmed—might affect contract volumes and pricing volatility. Caps based on historical data suggest a steady increase in Mexican steel imports, rather than an abrupt spike. Thus, instead of preparing for sudden supply disruptions, we might see more stable pricing.

Changes in Trade Management

If Trump approves the agreement, lower tariffs could decrease costs for industries that need imported steel products. This could change the balance between steel producers and their customers. We may need to adjust prices on certain hedges and swaps related to North American metals, especially those tied to short-term price increases. The move from high tariffs to controlled quotas seems to show a shift toward more politically acceptable trade management. This could make pricing more predictable, as long as these limits don’t face further political changes. Keep an eye on how the price differences between US and Mexican steel respond over the next two weeks; adjustments in trade flows might lead to narrower price gaps, particularly in contracts related to hot-rolled steel or rebar. We should pay attention to demand for steel-related derivatives both domestically and internationally. Reduced tariff costs can lower the uncertainty built into contracts, which might lead to less cushion in some trading strategies. It may be worth re-evaluating risk scenarios in portfolios that rely heavily on trade relationships, adjusting where positions depended on ongoing tariffs. Finally, if the quotas are put in place and their details are released, we could see a more predictable pattern in US-Mexico steel trade. This could help with trading strategies focused on volume, rather than just price fluctuations. We may shift from terms influenced by political negotiations to conditions based on regular steel flows. Over time, the immediate volatility around announcements may decrease, with futures markets reflecting a more stable outlook. Create your live VT Markets account and start trading now.

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