Brazil and Mexico's Calculated Response to Trump's Proposed Steel Tariffs
The U.S. President, Donald Trump, has threatened to impose a blanket 25% tariff on all steel and aluminum imports into the United States, marking a significant escalation in his trade policies. This potential move has left Brazil and Mexico, two of the top exporters of steel to the U.S., in a state of uncertainty. Both nations are waiting to see if the tariff announcement is confirmed before taking any steps of their own. This latest development could reshape the steel trade between the U.S., Brazil, and Mexico, as their industries are heavily reliant on exports to the U.S. market.
Brazil’s Cautious Approach
Brazil, which exports a significant portion of its steel to the U.S., is carefully watching the situation unfold. Brazilian Finance Minister Fernando Haddad stressed that the government would withhold official reactions until Trump’s tariffs are officially confirmed. Haddad clarified that reports suggesting Brazil might retaliate by imposing taxes on U.S. tech firms were “not correct.”
Brazil is particularly vulnerable to these tariffs since nearly 48% of its steel production is exported, with a large share going to the U.S. In the face of these uncertainties, Brazilian steel stocks have reacted in mixed ways. For instance, shares of steelmakers CSN and Usiminas initially dropped after the announcement but later recovered. On the other hand, companies like Gerdau, which owns several steel plants in the U.S., saw their stocks rise by 5.6% following news of potential tariffs.
Mexico’s Deliberate Stance
Mexico is taking a similar cautious stance as Brazil. President Claudia Sheinbaum commented that Mexico would wait for any formal announcements on the tariffs before making a decision on its response. The country is also one of the largest suppliers of steel to the U.S., and a blanket tariff would likely hurt its economy.
While the tariffs are not yet confirmed, the Mexican government has been proactive in implementing measures to counteract the practice of "dumping" by China. Dumping refers to selling surplus steel at below-market prices to gain market share, a practice that undermines domestic steel industries. Mexico, in response, has introduced mechanisms to track the origin of steel imports to prevent Chinese steel from entering the U.S. through Mexican ports.
Implications for the Steel Industry
The proposed tariffs could have significant implications for steel producers in both countries. While companies like Gerdau, which have production units in the U.S., might benefit from a reduction in foreign competition, other companies, especially those focused on steel exports to the U.S., may face challenges. For example, Mexican steelmaker Ternium, which relies heavily on U.S. automakers for business, could see its market share shrink if the tariffs are enforced.
Additionally, Brazil and Mexico are both working to curb Chinese "dumping" practices. China has long been accused of flooding international markets with cheap steel, which undercuts domestic steel industries in countries like Brazil and Mexico. Both nations have responded by imposing tariffs on Chinese steel, and the possibility of U.S. tariffs on their steel exports could make the situation more complicated.
Brazil and Mexico's Future Actions
Both Brazil and Mexico are choosing to hold their cards close to their chest, awaiting more concrete decisions from the U.S. government before taking action. The governments are likely to weigh their responses carefully, balancing the interests of their steel industries with broader economic considerations.
In the event the tariffs are confirmed, retaliatory measures might be considered, especially if the U.S. decision harms their steel exports significantly. Both countries have indicated that they may take steps to protect their own steel industries, including exploring new trade agreements or revisiting existing ones.
For now, the steel industry in both Brazil and Mexico remains in a state of uncertainty. Whether the 25% tariffs become a reality or not, the proposed measures have already caused fluctuations in stock prices and raised concerns in the steel sector. If implemented, these tariffs could disrupt not only the steel market but also the broader trade relationships between the U.S., Brazil, and Mexico.
