Targeted Price Competitiveness
The Mexican government’s surprise move to raise tariffs on steel imports by up to 25 percent from countries with which it has not signed trade agreements is expected to deal a blow to South Korea only, not touching the United States or Japan.
The USTR announced on its website on Aug. 18 (local time) that it will seek ways to work with Mexico on low-cost Chinese steel. “We look forward to having discussions with Mexico to address a recent surge in U.S. imports of steel and aluminum products and increase transparency regarding Mexican steel and aluminum imports from third countries,” it said in response to Mexico’s decision to impose tariffs on steel imports from countries with which it has not signed trade agreements.
This will have both direct and indirect impacts on Korean exports to Mexico. The tariff increase does not apply to steel from the United States and Canada which inked the United States-Mexico-Canada Agreement (USMCA) with Mexico. Japanese steel will not be affected by this action either. This is because it signed an Economic Partnership Agreement (EPA) with Mexico in April 2005 and Mexico and Japan are members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
Therefore, this is highly likely to hit hard steelmakers such as POSCO in Korea, which does not have a free trade agreement with Mexico. According to the Korean Ministry of Trade, Industry and Energy, Mexico accounts for 7.8 percent (US$2.7 billion) of Korea’s total steel exports, making Korea the fifth-largest steel exporter to Mexico after the United States, the European Union, China, and Japan.
The top steel exporter to Mexico is the United States, accounting for nearly 50 percent of the total steel exports to Mexico. Japan, Korea, China, and Vietnam account for 10 to 15 percent, respectively. Vietnam, a member of the CPTPP, is also excluded from this action. Korea is faced with a huge tariff without both bilateral and multilateral trade agreements.