US and Mexico close to agreement on easing Trump's steel tariffs on imports: report

The US and Mexico are nearing an agreement to ease proposed steel tariffs, potentially allowing a capped volume of Mexican steel to enter the US duty-free, based on historical trade volumes but exceeding previous limits. Commerce Secretary Howard Lutnick is leading the talks, with Trump's approval pending amid broader diplomatic repositioning between the two countries. News of the potential deal led to a decline in US steelmaker stocks, including Cleveland-Cliffs and Nucor, while the Mexican peso trimmed losses; the agreement aims to balance protection for US steelmakers with flexibility for Mexican exporters and US end-users.

Analysis

The United States and Mexico are advancing towards a trade agreement that would moderate the impact of President Trump's proposed 50% tariffs on steel imports from Mexico. This prospective deal would permit a capped volume of Mexican steel, based on historical trade figures but exceeding previous limits, to enter the U.S. duty-free, aiming to prevent import surges without imposing rigid numerical quotas. Commerce Secretary Howard Lutnick is spearheading these negotiations, though President Trump's final approval remains pending. News of this potential tariff relaxation triggered a notable market reaction, with shares of U.S. steelmakers Cleveland-Cliffs (CLF) and Nucor (NUE) declining by over 7% and 4% respectively, while the Mexican peso recovered some losses. Mexican officials, including Economy Minister Marcelo Ebrard, contend the tariffs are unwarranted, asserting that the U.S. exports more steel to Mexico than it imports. In 2023, the U.S. imported approximately 3.2 million metric tons of steel from Mexico, constituting roughly 12% of total U.S. steel imports. This developing agreement, which would revise a framework used during Trump's first term (based on 2015-2017 averages), occurs as Trump also endorsed Nippon Steel's acquisition of U.S. Steel Corp. (X) alongside his initial tariff hike announcement. If finalized, this deal could represent a nuanced policy adjustment, balancing domestic industry protection with the maintenance of trade relations with a key partner and potentially easing cost concerns for downstream steel consumers.

Key Decisions for Investors

• Investors holding positions in US steel producers like Cleveland-Cliffs (CLF) and Nucor (NUE) should brace for continued near-term pressure and monitor the final details of the US-Mexico steel agreement, as eased tariffs could reduce pricing power and import protection.
• Consider the potential for reduced input costs for downstream industries reliant on steel if the agreement is finalized, which could present opportunities in sectors like manufacturing and construction.
• Closely watch for President Trump's final decision on the proposed agreement, as his approval is a critical contingency and could significantly alter the current trajectory of these trade discussions and market sentiment.