The effects of US import tariffs on steel and aluminum imports from Mexico

Abstract

To this end, mathematical and statistical methods are used to model the effect of tariffs, ex-ante and ex-post, after implementing this trade policy, on exports of aluminum and steel from Mexico to the United States, versus US imports of these metals from the ROW. The results show that the protectionist tariff policy had a structural effect on US imports; likewise, the tariff shock implemented by the United States in June 2018 adversely affected its imports of these goods, both in terms of volume and value. This suggests that bilateral trade may be affected, but the effect is differentiated. The United States may be achieving its objective of protecting its domestic industry or it may impact upwards on the domestic prices of these metals, which could influence the prices paid by the final consumer. For Mexico, trade may be diverted or its export capacity reduced, adversely affecting its trade balance of these metals.

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Becerril Torres, O. U., Munguía Vázquez, G., & Wieloch, J. (2022). The effects of
US import tariffs on steel and aluminum imports from Mexico. Journal of
International Studies, 15(4), 165-179. doi:10.14254/2071-8330.2022/15-4/10
The effects of US import tariffs on steel
and aluminum imports from Mexico
Osvaldo U. Becerril Torres
Department of Economics, Autonomous University of Mexico State,
Mexico
obecerrilt@uaemex.mx
ORCID 0000-0002-5685-5636
Gabriela Munguía Vázquez
Department of Economics, Autonomous University of Mexico State,
Mexico
gmunguiav@uaemex.mx
ORCID 0000-0002-3753-8141
Justyna Wieloch
Department of International Trade, University of Lodz,
Poland
justyna.wieloch@uni.lodz.pl
ORCID 0000-0001-5956-2129
Abstract. This research aims to analyze the effect that the United States tariff policy
has had on its imports of steel and aluminum from Mexico. We attempt to
ascertain how the United States’ protective trade policy, followed since 2017,
influences trade volumes, import prices, and the possible diversion of trade to the
rest of the world (ROW). It is suggested that this policy generates an adverse
effect on US imports of these metals from Mexico. To this end, mathematical
and statistical methods are used to model the effect of tariffs, ex-ante and ex-post,
after implementing this trade policy, on exports of aluminum and steel from
Mexico to the United States, versus US imports of these metals from the ROW.
The results show that the protectionist tariff policy had a structural effect on US
imports; likewise, the tariff shock implemented by the United States in June 2018
adversely affected its imports of these goods, both in terms of volume and value.
This suggests that bilateral trade may be affected, but the effect is differentiated.
The United States may be achieving its objective of protecting its domestic
industry or it may impact upwards on the domestic prices of these metals, which
could influence the prices paid by the final consumer. For Mexico, trade may be
diverted or its export capacity reduced, adversely affecting its trade balance of
these metals.
Keywords: trade war, trade protectionism, trade policy, tariff shock, import duties
JEL Classification: F13, F14
Received:
January, 2022
1st Revision:
October, 2022
Accepted:
December, 2022
DOI:
10.14254/2071-
8330.2022/15-4/10
Journal
of International
Studies
Scientific Papers
© Foundation
of International
Studies, 2022
© CSR, 2022

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1. INTRODUCTION
This research aims to analyze the effect that the United States tariff policy has had on its imports of
steel and aluminum from Mexico. We attempt to ascertain how the United States’ protective trade policy,
followed since 2017, influences trade volumes, import prices, and the possible diversion of trade to the rest
of the world (ROW). It is suggested that this policy generates an adverse effect on US imports of these
metals from Mexico.
Aluminum is the second most used metal globally, only behind steel, with China being the most
relevant actor in the world market. In 2016, the United States imported five times more aluminum than was
supplied by local producers; the level of import penetration was around 90 percent, compared to 66 percent
in 2012 (WTO, 2019).
It should be noted that even though Mexico exports products that contain aluminum, the production
of aluminum itself is still modest in Mexico, although it is growing consistently. In 2015, the basic aluminum
industry contributed 0.04 percent to the national GDP, 0.1 percent to the industrial GDP, and 0.2 percent
to the manufacturing industry (US Department of Commerce, 2018).
Meanwhile, the steel industry is one of the most important industries in the world. Mexico is no
exception, as in 2019 it produced around 18,400,000 tonnes of steel, becoming the world’s 15th-largest
producer. According to Mexico’s National Chamber of the Iron and Steel Industry (CANACERO), in 2021,
world steel demand is expected to increase by 3.8 percent compared to 2020 - a recovery for the steel
industry (CANACERO, 2021).
The steel production process helps different industries to develop specialized products and services.
According to CANACERO, its production is mainly used in construction, metal products, and the
mechanical and electrical equipment sectors. Due to its multiple uses, steel is considered the most critical
engineering and construction material in the world. Additionally, it can be recycled again and again without
losing its properties (Benavides, 2016).
The last time the US government imposed tariffs on steel imports was in 2002, when the Bush
administration imposed temporary tariffs of 8-30 percent. Imports from Canada and Mexico were exempted
at that time, as per the North American Free Trade Agreement (NAFTA) terms. The tariffs were lifted
twenty months later. During those 20 months, around 200,000 American jobs were lost in manufacturing
sectors that depended on steel imports. The magnitude of this year’s tariffs is far more significant than those
imposed in 2002, in part due to the lack of exemptions to the country’s trading partners.
The possible breaking apart of supply chains is another risk that would directly affect US companies.
Since the signing of NAFTA, various cross-border supply chains have been created by the US and
international companies to maximize production efficiency. These supply chains are already under the threat
of the ongoing renegotiation of NAFTA terms. The imposition of tariffs on imports from Mexico and
Canada would further complicate the renegotiation process and increase the risk of NAFTA disintegration.
That would mean a severe shock on the performance of companies in industries, such as the automobile
and textile and apparel industries, which are highly dependent on cross-border supply chains. Companies in
those sectors will need to redraw their production structures and reconstruct their supply chains. Not only
would this be a costly exercise for them, but it would also make them less competitive globally (US
Department of Commerce, 2018).
With the decision made by former President Donald Trump, from May 31, 2017, Canada, Mexico, and
the European Union’s export of steel and aluminum were covered with an extra 25 percent and 10 percent
duties, respectively.
In 2019, after negotiations between Mexico and the United States on the tariffs imposed on Mexican
steel and aluminum under Section 232 of the Trade Expansion Act of 1962, a mutually beneficial agreement

Justyna Wieloch, Gabriela Munguía Vázquez,
Osvaldo U. Becerril Torres
The effects of US import tariffs on steel and
aluminum imports from Mexico
167
was reached: the taxes would be removed, and quotas on Mexico’s steel and aluminum would be avoided.
These products will again be traded freely (US Department of Commerce, 2018).
In this context, this research aims to analyze the effect that the United States’ tariff policy has had on
its imports of steel and aluminum from Mexico, trying to ascertain how the US’s protective trade policy,
followed since 2017, influences trade volumes and import prices. Therefore, it is suggested that this policy
generates an adverse effect on its imports of these metals from Mexico. To this end, section two reviews
the theoretical foundations of the object of study; section three presents the context in which the aluminum
and steel industry has developed. Section four presents the model and characteristics of the data, which
make it possible to estimate the direct effect of the United States’ tariff policy on its steel and aluminum
imports from Mexico. The results from the estimated model are presented in section five to incorporate the
conclusions derived in section six.
2. LITERATURE REVIEW
2.1. Theoretical background
Economic relations among countries might be shaped under free trade, protectionism, or a blend of
both. More restrictive trade policies impose duties and other measures to reduce imports and thus improve
the trade balance. When such actions are taken with retaliations, countries experience a trade war. The
premises for imposing duties are diversified with their motivations and economic justification. They include
the need to:
• protect infant industries (Shafaeddin, 2000; Baldwin, 1969; Krueger and Tucner, 1982;
Harrison, 1994; Melitz, 2005; Sauré, 2007; Panagariya, 2011; Xu, 2006; Clemhout and Wan
Jr., 1970);
• protect senile industries (Gray, 1973; Hillman, 1982; Choi, 2001; Long and Vousden, 1991;
Magee, 2002; Lee and Swagel, 1997; Hillman and Cassing, 1986; Brainard and Verdier,
1997);
• undertake anti-dumping actions (Panagariya and Gupta, 1998; Brenton, 2011; Dinlersoz
and Dogan, 2010; Cheng et al., 2001);
• shape strategic trade policy (Milner and Yoffie, 1989; Krugman, 1994; Brander, 1995;
Rugman and Verbeke, 1990; Grossman and Maggi, 1997; Ionaşcu and žigić, 2001).
The most frequently raised reason is the need to protect national producers and suppliers, shift demand
from imported towards domestic products, and reduce unemployment. The import of goods is equated
with the export of capital and workplaces. Such an understanding is rooted in the idea of mercantilism, but
its economic justification is insufficient (Magnusson, 2015; Allen, 1991). Nevertheless, it appeals to the
public as a desire to protect the domestic market and thus is frequently employed by politicians to
substantiate imposing the duties, which often leads to the symmetric reaction of the counterparty and the
initiation of a trade war. Imposing duties could be either bilateral or evolve into a global (multilateral) affair.
Whichever path is followed, the consequences cover both directly involved countries and rest of the world
(ROW), but their direction and strength may vary.
In the case of a bilateral war, one country’s protectionism may not be answered with the retaliation of
the other, although it could lead to escalation and a tit-for-tat tariff war. The case of the US-Mexico trade
war (so far) has followed the first prospect, where specific actions of the American administration are not
met with symmetric reactions of the Mexican side. However, it does not mean that American customers
and suppliers do not suffer the consequences. There are several scenarios in which covering and covered
countries might be negatively affected.

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The option desired by the country following such a trade policy assumes that imposing duties reduces
import from the selected country and diverts demand from imported towards domestic goods (Bhagwati,
1988). Another alternative assumes that the government imposing duties would experience reduced imports
from the selected country, not compensated with increased demand for domestic products, but those from
ROW. In the third possibility, the imposed duties would not influence the demand, thus increasing the local
prices of both imported and domestic goods via increased costs of imported raw materials and intermediates
(Milner and Yoffie, 1989).
The United States and Mexico, together with Canada, were members of NAFTA. However, on July 1,
2020, it was replaced with USMCA (the United States-Mexico-Canada Agreement), although the general
idea remains – to facilitate the international trade and growth of the continent. Although the new deal is an
achievement of President Trump, in parallel, he imposed several duties on imports from Mexico.
According to Riezman and Kennan (1988), trade wars may, under certain circumstances, bring benefits,
e.g., they provide a theoretical model, and they argue that if a country is substantially bigger, it may gain
from imposing barriers in trade. Empirical studies do not confirm this conclusion, however, claiming that a
trade war is a lose-lose with negative impacts on various aspects of the economy.
2.2. Industry context
Both analyzed metals, steel and aluminum, can be infinitely recycled. The aluminum industry in Mexico
is already a strategic sector. Due to the exports of aluminum auto parts (engines and automotive accessories),
in 2018, it represented over 32 percent of the country’s total exports with a value of more than $38 bln).
However, the country’s shortage of bauxite, a rock made up of minerals and the main element of aluminum,
pushes imports of this metal. According to figures from the Data México website regarding the aluminum
and the manufacture of aluminum sectors, Mexico mainly gets its supplies from the United States, where
46.2 percent of total international purchases come from, followed by China, with 22.7 percent, and the
United Arab Emirates, with 3.8 percent (Navarro, 2020).
The growing demand for this metal and the rules of regional content in specific products established
by USMCA challenge Mexico to raise its production, many times through scrap recycling and the import of
basic inputs. The absence of primary aluminum production plants is due to the lack of aluminum, while
high production costs (intensive electrical energy consumption) make it unattractive for investment. Thus,
the domestic market is fed by imported primary aluminum and the regeneration and recycling of aluminum
scrap.
Although the aluminum industry’s importance results from the use of this material as an input in several
sectors, such as electronics, automotive, and aeronautics, in which Mexico has been seen as a good place
for their development, it also involves the medical (research and surgery) and construction sectors. Years
later, it became one of the pillars of the economy of the state of Nuevo León, and Mexico as a whole, until
its closure in 1986. Today, it is an ecological park and was declared a World Heritage Site due to its economic
importance and transformation.
Steel is a combination of iron and coal, minerals extracted through mining, or the recycling of raw
materials. Also, as mentioned above, steel can be recycled, as its life cycle is unlimited and does not lose its
elementary properties, meaning that it is sustainable. These features make it the most recycled component
globally, with an estimated 40 percent of all world steel production coming from scrap. The relevance of
steel is so great that it is possible to find it in products as diverse as surgical materials for hospitals, bicycles,
cars, buildings, and endless utilities for their uses and sustainability (CANACERO, 2021). It has also become
one of the pillars for the construction industry (Benavides, 2016).

Justyna Wieloch, Gabriela Munguía Vázquez,
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The effects of US import tariffs on steel and
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The steel sector in Mexico represents 61 percent of total demand in the construction industry, followed
by the automotive industry with a demand for steel of 11 percent. Approximately 18.8 mln tonnes of steel
are produced annually, making the country the 15th-largest producer worldwide (CANACERO, 2016).
Annual production in Mexico equals 1.5 mln tonnes, representing 1.6 percent of the world’s manufacturing,
according to data from the Confederation of Industrial Chambers of the United Mexican States
(CONCAMIN). In 2015, the global steel industry experienced a critical period: prices fell by up to 30 percent
compared to the previous year, a result of overproduction in Asia, the leading supplier of various countries
in the world. For Mexico, a country with an annual production of 18.8 mln tonnes of crude steel, according
to data from CANACERO, such a drop was difficult. During that year, the overproduction of steel, mainly
from China, sold at meagre prices, caused imports of this metal in the country to increase by 7.9 percent
compared to 2014, obtaining a 43 percent share in the Mexican market.
However, in 2016, the statistics began to improve for Mexico. According to figures from
CANACERO, steel production showed an increase of 4.3 percent. In the same year, exports of steel
products also increased (CANACERO, 2016).
One factor that enabled the steel industry’s recovery was that Mexican steel producers focused on
competing with foreign manufacturers on prices, generating strict cost control, and paying particular
attention to quality and service (Benavides, 2016).
There are other factors that helped the Mexican steel industry stay afloat. One of them was the rise in
the price of the metal in 2016 recorded on the world market (which, as a commodity, fluctuated according
to supply and demand), as well as the anti-dumping measures undertaken by the government to prevent
unfair import. To boost the consumption and competitiveness of national steel, from October 7, 2015, the
federal authorities, through the Ministry of the Economy, announced the imposition of a temporary 15
percent tax on steel imports from countries with which Mexico has no trade treaties, such as China. This
measure caused steel imports to fall by more than 15 percent during the fourth quarter of the year. In 2016,
when the decree was twice renewed, in April and October, there was a decrease of 2.8 percent in total
imports in the same period (Benavides, 2016). In this context, we could conclude that the Mexican steel
industry is currently experiencing a specific state of protectionism, a phenomenon that we can also see in
other countries, such as the United States.
It is a relief to have this type of protection for domestic industry, as it allows the domestic market to
be competitive with imports from countries like China, which are sold at a meagre cost. During 2017, the
Mexican steel sector was expected to continue a positive trend, stemming from the announcement in April
of that year that the 15 percent tariff would continue, as well as the growth of national consumption, driven
by the automotive industry, transport, pipe manufacturing, (CANACERO, 2021). Unlike the global
stagnation of developed economies or the downward trend of countries like China, the outlook for steel
demand continues to be positive in Mexico. In 2016, according to CANACERO statistics, apparent national
consumption was 29.6 mln tonnes, 2.5 percent higher than in 2015 (Benavides, 2016).
Generally, in Mexico, there are many social, economic, or political factors that make this country the
13th steel producer in the world. However, the volatility of international prices of this metal will be the
factor that determines the profitability of domestic producers.
As mentioned before, aluminum and steel can be recycled repeatedly without losing their original
properties, such as lightness, durability, conductivity, and impermeability. Thus, they are considered
ecological materials. This explains the industry’s global ambition to double the use of available scrap. Such
strategies are followed in markets such as the European Union (EU), where the recovery rate of aluminum
scrap is about 85 percent. Reprocessing this material at the end of its lifecycle to transform it into new raw
material represents a market that generates profits of $4 bln per year. According to the Circular Aluminum
Action Plan of the European Aluminum agency, the use of “post-consumer” aluminum meets 36 percent

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of the demand for this metal in the EU. By 2050, it is expected that 50 percent of the demand will be
satisfied with reused material (CAPOEAA, 2021), giving Mexico an advantage and presence in international
markets.
Figure 1
Annual merchandise exports of steel and aluminium, 1980-2019 ($ mln)
Source: Own-calculations based on US Census Bureau and WTO data
Figure 2
Gross domestic product by kind of economic activity: Mining, manufacturing, utilities, annual, 1980- 2019
($ bln at current prices)
Source: Own calculations based on UNCTAD
In 2019, Mexico’s steel exports totaled $9.9 bln, representing 2 percent of the country’s total export
value. In terms of employment, there were 672,000 people employed directly or indirectly in this industry.
There were 11,332 jobs in the iron and steel industry, 82 percent of whom belonged to the category of
workers, 18 percent to employees (administrative or secretarial), and 32 percent to subcontracted jobs
(outsourcing). For every paid job, a surplus of more than $251,595 was generated, which was nine times the
average value of the manufacturing industry’s operating surpluses. On the other hand, the productivity of
the paid workforce is the second-highest in the manufacturing sector; the automotive sector is first (Instituto
Nacional de Estadística y Geografía, 2016).
Concerning the labor requirements of the primary iron and steel industry, there has been a steady
decline over time, and in 2019 there was a sharp drop, which strongly affected the manufacturing sector as
a whole; the total decrease in paid jobs in manufacturing was more than 500,000 paid places.
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Justyna Wieloch, Gabriela Munguía Vázquez,
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Figure 3
Wage-earners in Mexico and the United States, mining and quarrying, 2010- 2020 ($)
Source: own-calculations based on: ILO-STATISTICS - Microdata processing | Age coverage - minimum age: 14
years old, 20/03/2021
The United States is far from being self-sufficient in steel and aluminum, with imports accounting for
over 30 percent of the consumed metals. Given the industrial importance of these metals, tariffs imposed
on imports will significantly increase production costs for American manufacturers across various industry
sectors. Soon after the tariffs were announced, the price of steel in the US jumped to levels far above most
countries worldwide, e.g., 50 percent above European prices and 80 percent above Chinese ones. In the
first quarter of 2018, about 80,000 and 56,800 people in the United States were employed in the steel and
aluminum industry, respectively. Concurrently, over 3.4 mln people are employed in steel- and aluminum-
consuming sectors, such as fabricated steel products, machinery, and transportation equipment. These
sectors will experience a direct increase in production costs because of the tariffs (US Department of
Commerce, 2018). Even though prices are likely to drop slightly over the long term as domestic mills expand
production, prices will likely remain well above international levels.
The tariffs make it cost-prohibitive to import steel. As a result, there is an associated cost burden for
US industrial sectors that are dependent on steel as a raw material, weakening the competitiveness of
American manufacturers and potentially leading to job losses. Besides directly damaging the import sectors,
tariffs on steel and aluminum would also lead to inflationary pressures for the US economy. The increase in
production costs will ultimately be reflected in consumer prices. Retailers (such as Best Buy and JC Penney)
and manufacturers (such as solar panel companies) will need to increase prices. This may prompt the Federal
Reserve to accelerate the pace of its rate hikes to be part of inflation and avoid risking an economic
slowdown (US Department of Commerce, 2018).
2.2. Industry context
Mexico is a major auto parts producer; a quarter of the vehicles imported into the United States come
from this trading partner. Almost 80 percent of Mexico’s exports go to its northern neighbor. Despite this,
the United States imposed tariffs on imports of steel (25 percent) and aluminum (10 percent) from Mexico,
Canada, and the EU from June 1, 2016, under the national security criterion under section 232 of its
legislation (CANACERO, 2016).
Donald Trump’s presidency was accompanied by launching and continuing a protectionism policy to
discourage imports, especially in the fragile and heavily-weighted import structure industries, including steel
and aluminum, which meet both these criteria. Officially driven by national security concerns, the US
4939 4967 5089 5040 5310 5377 5385 5561 5592 6027 6074
831 827 776 694,87 722,04 720 666,7 640 627 613 619,975
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administration imposed additional duties on steel (25 percent) and aluminum (10 percent) from Canada,
Mexico, and the EU, effective June 1, 2018. These measures were one of several implemented under
Trump’s presidency. Yet, in Mexico’s case, the against-import policy was a blend of statements,
announcements, and premises with very few import-restricting decisions. While these import taxes were
being put into effect, the United States, Mexico, and Canada were renegotiating NAFTA, confirming the
goodwill of all three parties to facilitate trade and tighten economic relations. Thus, the American decision
was even more surprising for the other member states.
The choice of industries to be covered by restrictions was justified by a mixture of the need to guarantee
national security and protect the internal economy, including companies that operate in the steel and
aluminum industries. The US Department of Commerce (2018) ran an investigation that concluded that
steel and aluminum are essential to US national security, and that the volumes of imports (in 2018 and
before) adversely impacted the economic welfare of the US aluminum industry. Yet, even though Mexico
was hit with the import duties, the United States had a trade surplus in trade with aluminum products ($2.1
bln in 2016). The employment decline in the American primary aluminum sector was accompanied by
employment growth in other industry segments, giving 3 percent growth.
The research preceding the decision to impose extra duties was accompanied by hearings from several
stakeholders, including commerce representatives and other diplomatic units (Scott, 2017, 2018a, 2018b).
During the public hearing, the Chinese representative confronted the official justification with the facts
regarding the US aluminum industry, emphasizing that national security requirements for this material are
entirely supplied by domestic production. Thus, imports do not impair national security. Due to this sector’s
development in the US, domestic suppliers could provide the required volumes of aluminum for defense
and national security. Thus, imports did not pose a threat to these sectors, nor did they contribute to the
decline in employment, which steadily rose by approximately 3 percent annually from 2013. Sourcing
primary aluminum materials from foreign suppliers was also accompanied by the American export of semi-
finished and final goods. These goods have mainly civilian applications, which does not correspond with
the official arguments.
The US Administration’s decision was aimed at three economies: Canada, Mexico, and EU member
states. The EU is America’s primary source of imported steel, while Canada is the top aluminum supplier.
To understand the US decision to impose tariffs on these economies, it is worth paying attention to the
share of these countries in the American imports of aluminum (Figure 4) and steel, respectively (Figure 5).
In both figures, the data only include products covered with duties
1
.
1
Aluminum: 7601, 7604, 7605, 7606, 7607, 7608, 7609, 7616.99.51.60 and 7616.99.51.70.
Steel: 20610 - 721650, 721699 - 730110, 730210, 730240 - 730290, and 730410 – 730690.

Justyna Wieloch, Gabriela Munguía Vázquez,
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The effects of US import tariffs on steel and
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Figure 4
The share of Canada, Mexico, and the European Union in US imports of aluminum products, 1989-
2020 (%)
Source: own-calculations based on US Census Bureau
Figure 5
The share of Canada, Mexico, and the European Union in US imports of steel products, 1989-2020
(%)
Source: own-calculations based on US Census Bureau
Figures 4 and 5 show that all these economies, to various extents, are significant suppliers of aluminum
and steel products on the US market. Imposing duties provided noticeable protection to the domestic
manufacturers and carried considerable potential damage to foreign trading partners. In contrast, the United
States Trade Representative (USTR) reported that it had reduced the quota for imports of semi-finished
steel products from Brazil from 350,000 to 60,000 tonnes by 2020.
Previously, on August 11, 2019, the USTR announced it would reimpose tariffs of 10 percent on US
imports of raw non-alloy aluminum from Canada, to which the Canadian government replied that it would
impose reprisals against US products for about $2.7 bln.
US Department of Commerce Bureau of Industry and Security Office of Technology Evaluation
(2020) also published an agreement requiring automatic permits to be processed before the export of 63
different types of steel products. Mexico and the United States successfully concluded consultations under
the mechanism established in their May 17, 2019, Joint Statement to address the increases in imports from
Mexico of three steel products: standard pipe, mechanical pipe, and semi-finished products. Under the
agreement, a quota on aluminum imports was not imposed, but if imports increased dramatically compared
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Canada Mexico European Union
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20,00%
30,00%
40,00%
50,00%
Canada Mexico European Union

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with historical volumes, the United States reserved the right to reimpose the tariff while Canada and Mexico
reserved the right to reimpose retaliatory measures (Chappell, 2019). Aluminum imports from all countries
except Argentina, Australia, Canada, and Mexico remained subject to the 10% ad valorem tariff as of early
December 2021.
3. METHODOLOGY
The econometric modeling and estimations were done through the linear model
𝒀𝒕= 𝑿𝒕 𝜷 + 𝑼𝒕
Where Y refers to a vector of data on imports of aluminum and steel (in logarithms), from the United
States and from all over the world. Matrix X includes variables of exports of aluminum and steel from
Mexico to the United States, or equivalently, their imports from Mexico (in logarithms), as well as dummy
variables, which allow modeling of the effect of the tariff shock by the United States. It also includes lagged
exports to capture the dynamics of export processes. U is a vector of stochastic disturbance. The method
of estimation is ordinary least squares.
Thus, the Chow test has also been incorporated, making it possible to collect information on the
possibility of a structural effect on exports derived from the tariff shock by the United States. The data are
in monetary units (US dollars) and physical units (kilograms). The information comes from the database of
the US Census Bureau and covers the period January 2017-January 2021. We consider the set of goods
covered with duties according to the respective HTS codes
2
.
4. EMPIRICAL RESULTS AND DISCUSSION
To identify the possible structural effect derived from a shock that alters the behavior dynamics of one
or more variables in the model, we conducted the Chow test. For model 1 presented in Table 1, the result
of this test indicates that with the US’s implementation of tariffs on aluminum imports from Mexico, a
structural effect is observed derived from this shock, starting in June 2018. Likewise, the value of the
parameters obtained shows that they are statistically significant to explain the behavior of total imports in
monetary units ($).
Model 2 presented in Table 1 shows that by incorporating a dichotomous variable, which models the
imposition of tariffs on US imports of aluminum from Mexico, it is statistically significant but with a
negative sign. This allows us to infer that the tariff policy launched in June 2018 by the United States
adversely affected its imports of aluminum from Mexico. The coefficients obtained for the variable
representing American imports from Mexico show that with tariffs, it is reduced from 0.38 to 0.20 percent,
2
For aluminum, each variable includes HTS codes: 7601,7604, 7605, 7606, 7607, 7608 and 7609. For steel each
variable includes HTS codes: 7206.10, 7206.90, 7207.11, 7207.12, 7207.19, 7207.20, 7208.21, 7208.22, 7208.23,
7208.24, 7208.42, 7208.43, 7209.13, 7209.22, 7209.23, 7209.24, 7209.42, 7209.90, 7210.31, 7210.39, 7210.49, 7210.70,
7210.90, 7211.19, 7211.22, 7211.29, 7211.30, 7211.41, 7211.90, 7212.21, 7212.29, 7212.30, 7212.40, 7213.10, 7213.31,
7213.41, 7214.20, 7214.40, 7214.50, 7215.10, 7215.90, 7216.10, 7216.21, 7216.22, 7216.31, 7216.32, 7216.33, 7216.40,
7216.50, 7217.11, 7217.12, 7217.19, 7217.32, 7218.90, 7219.31, 7219.32, 7219.33, 7219.34, 7219.35, 7220.12, 7220.20,
7220.90, 7222.10, 7222.40, 7223.00, 7224.90, 7228.30, 7228.50, 7228.60, 7228.80, 7302.10, 7302.90, 7304.10, 7304.20,
7304.31, 7304.39, 7304.59, 7304.90, 7305.11, 7305.12, 7305.19, 7305.31, 7305.39, 7305.90, 7306.10, 7306.20, 7306.30,
7306.40, 7306.50, 7306.60, 7306.90.

Justyna Wieloch, Gabriela Munguía Vázquez,
Osvaldo U. Becerril Torres
The effects of US import tariffs on steel and
aluminum imports from Mexico
175
which implies a fall in the relative participation of Mexico as an aluminum supplier. The value of the
parameter obtained for the dichotomous variable, being negative, shows that with the presence of the tariff
shock (punitive duties) on the imports of aluminum from Mexico to the United States, the latter loses about
0.18 percent in the supply of aluminum in Mexico in monetary values.
In the light of these results, it is possible to suggest that a tariff shock, such as the one presented by
US aluminum imports from Mexico, is leading this country to a trade diversion if it wants to maintain its
aluminum export levels.
Table 1
The effect of tariffs on Mexican aluminum exports to the United States
Variable
Parameters
Coefficient
Model 1
Coefficient
Model 2
Constant
bo
14.72
(1.77)
[8.31]
p-value: 0.0000
16.10
(1.48)
[10.84]
p-value: 0.0000
Exports from
Mexico to the
US
b1
0.36
(0.10)
[3.35]
p-value: 0.0016
0.28
(0.08)
[3.19]
p-value: 0.0025
Dummy
b2
-0.24
(0.05)
[-4.83]
p-value: 0.0000
Determination Coefficient:
0.19
Determination Coefficient: 0.46
Chow test:
Null Hypothesis:
No breaks at
specified
breakpoints
F-statistic: 14.80
F(2,45)
p-value: 0.0000
The variables are expressed in logarithms to obtain the elasticities, with monthly information. The dichotomous
variable acquires unit values from the date that the United States imposed tariffs on Mexican aluminum.
Source: Authors’ compilation with data from the US Census Bureau
The United States’ tariff policy had unfavorable effects on the Mexican steel export to that country
(see Table 2). This is demonstrated in model 1, where, by employing the Chow test, it is possible to state
that implementing the steel tariff in June 2018 has had a long-term effect on steel imports from Mexico to
the United States. The relevance of Mexican exports over those of the United States is observed since the
coefficient for the variable of Mexican imports is significant.
Model 2 includes a dichotomous variable that aims to identify whether the tariff shock has harmed US
imports. As can be seen, the coefficient is statistically significant, which shows that with the imposition of
tariffs, the monetary value of imports is reduced since the coefficient is lower than that of model 1. Likewise,
the dichotomous variable has a negative coefficient, indicating that with the tariff imposition, the value of
imports was reduced by 0.28 percentage points. Finally, model 3 becomes more dynamic by incorporating
the import variable from Mexico, which is lagged one period, to observe if it affects modeling. The result is
that it also influences imports from Mexico, reducing the value of the parameter of the contemporary
variable, as an effect on the dichotomous is marginally affected.

Journal of International Studies
Vol.15, No.4, 2022
176
Based on the above, it can be argued that a tariff shock to aluminum and steel imports into the United
States from Mexico has an adverse effect, possibly causing a trade diversion by Mexico, whether its objective
is to maintain the same levels of export of these metals.
Table 2
The effect of tariffs on Mexican steel exports to the United States
Variable
Parameters
Coefficient
Model 1
Coefficient
Model 2
Coefficient
Model 3
Constant
bo
3.89
(3.15)
[1.23]
p-value: 0.2227
6.41
(2.50)
[2.56]
p-value: 0.0137
3.13
(2.76)
[1.13]
p-value: 0.2632
Export from
Mexico to
the US
b1
0.91
(0.16)
[5.55]
p-value: 0.0000
0.79
(0.13)
[6.07]
p-value: 0.0000
0.59
(0.14)
[4.05]
p-value: 0.0002
Dummy
b2
-0.28
(0.05)
[-5.56]
p-value: 0.0000
-0.29
(0.05)
[-5.83]
p-value: 0.0000
Import from
Mexicot-1
b3
0.37
(0.14)
[-2.60]
p-value: 0.0126
Determination
Coefficient: 0.39
Determination
Coefficient:: 0.63
Determination Coefficient:
0.68
Chow Test
Null
Hypothesis:
No breaks at
specified
breakpoints
F-statistic: 11.74
F(2,45)
p-value: 0.0001
The variables are expressed in logarithms to obtain the elasticities, with monthly information. The dichotomous
variable acquires unit values from the date of the United States’ imposition of tariffs on Mexican aluminum.
Source: Authors’ compilation with data from the US Census Bureau
The results of our study correspond with other authors’ findings. Hodge (2018) calculated the potential
impact of the imposed tariffs assuming that the imports in 2018 equaled the respective values in 2017. For
example, for steel, whose total value of imports in 2017 was approx. $2.5 bln, the 25 percent tax would total
approx. $625 mln. Meanwhile, for aluminum, the value of imports was approx. $208 mln, and the estimated
impact of a 10 percent tariff would be approx. $20 mln According to these projections, the value of affected
imports was reduced by approximately $13 bln.
Hodge (2018) also provides calculations on these tariffs, aggregating data for Mexico and Canada, both
affected by these extra import taxes. He indicates that these tariffs were harmful to the American
manufacturing sector, especially the downstream US steel and aluminum consuming companies, as they
increased prices and lead times for both domestic and imported steel and aluminum.
Amiti, Redding, and Weinstein (2019) researched the impact of the US’s 2018 tariffs on prices and
welfare. Their analysis does not cover import tax, which was the subject of our investigation. However, it is
worth noticing that these import tariffs were almost wholly passed through into US domestic prices with
no repercussions on prices received by foreign suppliers. They estimated that in 2018, the cumulative
deadweight welfare cost, understood as a reduction in real income, accounted for $8.2 bln. It additionally

Justyna Wieloch, Gabriela Munguía Vázquez,
Osvaldo U. Becerril Torres
The effects of US import tariffs on steel and
aluminum imports from Mexico
177
created a cost of $14 bln to domestic consumers and importers in the form of tariff revenues transferred to
the government.
5. CONCLUSION
The study discussed the consequences of import duties on bilateral trade. Using statistical and
mathematical methods of analysis, it identified the effect of the 2018 tariff shock on imports of aluminum
and steel into the United States. The shock had a structural effect, which has been verified for both
aluminum and steel imports. Likewise, the unfavorable impact in both monetary and physical units of the
tariffs on both categories of goods has been shown, as reported by the estimated models.
As far as bilateral trade is concerned, the effect is differentiated. The United States may achieve its
objective to protect the local industry and shift imports towards domestically produced goods. However,
by impacting the domestic prices of these metals upwards, it could also influence the prices paid by the final
consumer. For Mexico, trade could be diverted or its export capacity reduced, adversely affecting the trade
balance of these metals.
Our estimations of the consequences of the US trade war correspond with the conclusions presented
by other authors. However, it is hard to make direct comparisons due to the very narrow scope of the
investigation. Nevertheless, the trade war between the United States and Mexico follows the perspective
that the specific actions of the US administration do not find symmetrical reactions on the Mexican side.
The results of this study are consistent with existing empirical evidence but contradict the argumentation of
Riezman and Kennan (1988).
ACKNOWLEDGEMENT
The authors are thankful to the Faculty of Economics and Sociology, University of Lodz for financial support to
publish this research.
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