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Unstable trade situation choking off investments

On June 5, Mexico, in retaliation for the Trump administration slapping tariffs on Mexican and other countries’ steel and aluminum imports to the U.S., announced its own tariffs on U.S. steel and aluminum imports. The tariffs will range between 15 and 25 percent.

On June 6, this is how my day unfolded: phone call to me from one of my associates: “What’s going on with Mexico’s imposition of tariffs on steel and aluminum? Can you find out if this affects companies participating in Mexico’s maquila industry?”

My phone call to the U.S. Department of Commerce: “Can you provide me with specific information on Mexico’s tariffs on U.S. steel and aluminum? And how they will be implemented and in what sectors?” USDOC response: “We don’t have any specifics at this point, but let’s see if our people in Washington, D.C., have any information.”

My next phone call, to Mexico’s Secretariat of the Economy: “How will the tariffs on U.S. steel and aluminum imports be implemented, and will companies shipping steel and steel components operating within Mexico’s maquiladora industry be affected?” The secretariat’s response: “The official decreto (decree) on the new tariffs has not yet been published, so we don’t have any information at this time. However, we will contact Mexico City to see if we can provide you with any specific information.”

The U.S. Department of Commerce sends me a slew of links to study more about U.S. steel and aluminum exports to Mexico. This is good information, but it doesn’t discuss specifics of Mexico’s new tariffs. I keep following up with officials at Mexico’s Secretariat of the Economy, but until the official decree is published, they cannot provide me with any specific information.

As all of this is taking place, I am receiving calls from U.S. companies that ship steel to Mexico, and American and Mexican reporters trying to grasp what effects the new tariffs will have on U.S.-Mexican trade. I have to punt on the issue, because I, like everybody else, am in the dark as to the specifics of tariffs. The lack of information from both sides increases the apprehension.

Finally, the decree is published, and my friend at the secretariat forwards me the link. I take a couple of hours to read through the whole document, which is written in Spanish legalese and difficult even for a Spanish speaker to understand at first reading. The document goes through the rights of the Mexican government to defend its self-interests, and finally, charts of steel categories and the associated tariffs that are being imposed are clearly listed. Still, no definitive information on whether U.S. steel/aluminum exports within the maquiladora framework will be affected.

Finally, I zero in on two paragraphs that specify in what sectors the tariffs will be applied, and a reference to the fact that they won’t be imposed on firms that are already participating in a tariff deferral program (i.e., the maquila industry). Voila! I call my contacts and translate the passages into English. One of my friends actually uses online translation software, and the translation is almost identical to my spoken translation. An air of collective relief ensues. However, everybody is exasperated by the official announcements that are made without specific information for companies that could be directly affected by the tariffs.

Trump might not have believed that Mexico or Canada would retaliate against U.S. tariffs that he imposed on steel and aluminum imports from these countries. Both countries are proving him wrong. Some estimates say that U.S. and Mexican companies operating within Mexico’s maquiladora program account for nearly 80 percent of U.S.-Mexican trade. Because the maquiladora industry is such a huge generator of production and exports between the U.S. and Mexico; and this sector appears untouched, and the U.S. is imposing tariffs on Mexican steel/aluminum in products imported into the U.S., and in reality, this is a small percentage of overall Mexican exports to the U.S., what is really happening?

Politics are what is happening. Mexico got blindsided by the Trump administration and it was forced to retaliate; however, it is essentially playing the same game as Trump by imposing tariffs where they will have the smallest effect. In the meantime, a waiting game ensues to see what the other side will do next, with both sides keeping their heavy ammunition – tariffs that could be imposed on larger trade flows between the two countries – on standby if necessary.

Who is being affected? Mostly, U.S. companies that ship billions of dollars of exports, including metals, to Mexico. As one of my colleagues in the steel industry who ships hundreds of millions of dollars of metals to Mexico each year told me, “I could add another production line and hire another 12 employees, but I am not going to do this under this environment of uncertainty. Things could change again tomorrow. I am spending so much time on this issue, which is taking me away from my actual work.” How many more companies are postponing new investments and putting off on hiring new employees because of the unstable circus that has been created by this tit-for-tat situation that should not have been started in the first place?

Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit trade counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or at jerry@nmiba.com.

 

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