Dear Members and Friends:
Hope you are well and staying safe.
Although the USMCA is just five weeks old, the first issue needing negotiation has cropped up. Speaking at a Whirlpool plant in Ohio last Thursday, President Trump said that Canada had promised that “its aluminum industry would not flood our country with exports and kill all of our aluminum jobs, which is exactly what they did.” He indicated that the U.S. would impose a 10% duty on imports of non-alloyed unwrought Canadian aluminum. The tariffs will take effect on August 16 according to the USTR.
Trump originally imposed 232 tariffs on aluminum and steel imports in 2018. He then lifted them last May to smooth the way for the USMCA - while setting limits on what products could be targeted in the event of a future dispute. However, this year, aluminum imports from Canada rose sharply from February to March but have since leveled off and actually dropped 2.6% from May to June. The Aluminum Association of Canada (AAC) said last week those exports to the U.S. fell 16% in June and 40% in July as their system was starting to rebalance. Due to the trends and pressure from the American Primary Aluminum Association, the President proceeded with the increase.
Canada then on Thursday evening indicated it would impose $3.6 billion in punitive countermeasures from a preliminary list of products. The decision on which products will be subject to countermeasures will be drawn from the list following comments from industry.
Also on Canada, the Minister of Small Business, Export Promotion and International Trade just released a report entitled “Canada’s State of Trade 2020,” which gives a view of economic activities in 2019 while recognizing the unprecedented global uncertainty of 2020 amid the COVID-19 pandemic.
On Mexico, we have two new reports on economic expectations going forward ("Latin America Monitor" from Fitch Solutions and "Mexico Economic Outlook" from BBVA). Unfortunately, the forecast for GDP is for negative 7% or greater for this year and only under 2% positive next year. The government has implemented drastic cuts to its operational budget, including 25% salary cuts for high-ranking officials and a 75% reduction in spending on general services and supplies, among other measures, which together are expected to save roughly USD25.0bn. These pro-cyclical cuts could prove to be counterproductive by reducing aggregate demand in the midst of an economic recession.
The Wilson Center and the Institute of the Americas have produced a report on “The Economic and Strategic Arguments for Renewable Energy in Mexico.” The report indicates that, “Notwithstanding AMLO’s position, renewable energy continues to play an important role and has enormous potential for the future in Mexico. . . Among other things, the paper shows that solar and wind projects can supply electricity at a cost below that from conventional gas-fired generation and provide economic development benefits. Further, with battery energy storage and available grid management tools, it is possible to manage the intermittency of renewable energy and integrate it effectively into the transmission grid and distribution networks.” Interesting possibilities for the future.