• Mexico is optimistic about reaching a deal with the US to reduce or cap tariffs on steel and autos, according to officials familiar with the talks.
  • The discussions, led by Mexico's trade officials, are part of broader USMCA/tariff reviews and aim to unlock investment and ease supply chains.
  • Progress is possible but not finalized, with potential for near-term relief and longer-run structural changes.

Mexico Grows Confident on US Deal to Cut Steel, Auto Tariffs

Mexico is expressing growing confidence that it can strike a deal with the United States to reduce or cap tariffs on steel and autos, according to people familiar with the matter, as the two neighbors seek to defuse lingering trade tensions that have weighed on investment and supply chains.

The talks, led by Mexico's trade officials, are part of a broader review of the US-Mexico-Canada Agreement (USMCA) and follow years of friction over Section 232 tariffs on steel and aluminum, as well as auto duties. Without a deal, Mexican exporters could continue to face hefty levies that make their products less competitive in the US market.

"We are optimistic that we can reach an understanding that provides certainty for our industries," a Mexican trade official said, speaking on condition of anonymity because the negotiations are private. "The conversations have been constructive."

The push comes as both countries look to strengthen North American supply chains and reduce reliance on Asian imports. Mexico's steel and auto sectors are key to that effort, but the existing tariffs have hamstrung growth. According to industry data, Mexican steel exports to the US have fallen since the tariffs were imposed, while auto manufacturers have had to absorb higher costs.

One key point of discussion is a potential quota system that would allow a certain volume of Mexican steel and autos to enter the US tariff-free, with duties applying only above that threshold. Such an arrangement would provide predictability for Mexican exporters while still protecting US producers. However, the details remain under negotiation, and US officials have signaled that any deal must include enforceable commitments to prevent transshipment of Chinese steel through Mexico.

"We need to ensure that any agreement is balanced and benefits both sides," a US trade representative said in a statement. "We are working closely with Mexico to address these issues."

The timing of a potential deal is uncertain, but experts suggest that an agreement could be announced in the coming months, possibly alongside the USMCA review. If successful, it would mark a significant de-escalation of trade tensions that have plagued the relationship since the Trump administration imposed the tariffs in 2018.

"A deal would be a win-win for both economies," said Maria Fernandez, a trade analyst at a Washington-based think tank. "It would lower costs for US manufacturers that rely on Mexican steel and auto parts, and it would give Mexican exporters the certainty they need to invest."

Still, hurdles remain. Mexico's auto industry is concerned that any cap on tariff-free exports could limit growth, while US steel producers are wary of increased competition. Negotiators are also grappling with how to verify the origin of steel and auto parts to prevent circumvention.

For now, both sides appear committed to finding a solution. Mexico's economy ministry did not respond to a request for comment, but officials have privately indicated that they see a path forward. The US Trade Representative's office declined to comment on the specifics of the talks.

The stakes are high: Mexico is the largest trading partner of the US, with two-way trade in goods totaling over $600 billion in 2022. A deal on tariffs could pave the way for broader cooperation on issues ranging from energy to migration, while failure could exacerbate tensions and hinder investment in North America.

As one Mexican official put it, "We are not there yet, but we are closer than we have been in a long time."

Update: This article was updated to clarify that the talks are part of the USMCA review process and to include additional context on the potential quota system.