On July 10, local time, the White House website announced a new policy implemented by US President Biden to implement the requirements of "smelter and newest casting country" for imported aluminum products from Mexico, that is, the main or secondary production source of primary aluminum used in imported aluminum products from Mexico is China, Russia, Belarus, Iran (referred to as "China and Russia"). Or the casting link in the above countries, will be in accordance with the "232 investigation" tariffs, effective on the same day.
In recent years, in order to overcome the impact of Sino-US trade friction and stabilize the basic export plate, China's aluminum enterprises continue to expand overseas markets, Mexico has gradually become China's largest aluminum export destination country, 2023 exports to Mexico 505,000 tons, accounting for 9.6% of China's total aluminum exports, ranking first, and most of the primary aluminum used in export products by China's domestic supply. Even if imported primary aluminum is used, the alloying melting and casting process is all completed in China. Therefore, the impact of the US-Mexico trade policy adjustment has triggered hot discussions in the industry. We believe that although this is a trade policy adjustment between the United States and Mexico, and the direct impact on the four countries is limited, forcing the Mexican aluminum industry to decoupage from the four countries and excluding Chinese aluminum and Russian aluminum and alloys is completely a reflection of hegemonism and "long-arm jurisdiction."
1. Background of the event
The 232 investigation is a trade investigation initiated by the US Department of Commerce in 2017 under Section 232 of the Trade Expansion Act on imported aluminum products from around the world. In March 2018, based on the investigation results, the US imposed 10% tariffs on imported aluminum products from around the world on the grounds of affecting national security, which took effect on the 23rd of the same month. Only Canada and Mexico are exempt, and then the EU, Australia, Brazil, South Korea and other countries or regions are temporarily exempted until May 1; On January 1, 2022, the United States implemented a tariff quota system for aluminum imports from the European Union. 232 The aluminum products involved in the investigation mainly include unwrought rolled aluminum and aluminum alloys, aluminum bar profiles, aluminum wires, aluminum strip, aluminum foil, aluminum tubes, aluminum tube accessories, some castings and forgings (7616.99.51.60, 7616.99.51.70) and some related products.
Second, analytical logic
The analysis of the specific impact involves the following three factors: First, whether the primary aluminum source and casting link are in the four countries of China and Russia; Second, whether the origin of the product has changed after export to Mexico; Third, whether the product after the change of origin is within the scope of 232 investigation.
First, you need to understand the rules of "origin." Rules of origin is an important component of international trade policy, its core is to identify the origin of import and export goods in accordance with the corresponding standards, the prevailing rule is that the country or region that ultimately makes the product "substantially changed" is the origin. According to The "Rules of origin" in the United States-Mexico-Canada Agreement (USMCA) signed in 2018, the origin of goods can be determined by the following three points: One is to use raw materials produced in three countries and produce; The second is the use of raw materials outside the three countries, but the first four digits of the product HS code (part of the requirements of the first six) have changed, such as aluminum plate and strip processing into aluminum foil, its HS number changed from 7606 to 7607; The first four or six digits of the product HS code have not changed, but the proportion of Regional Value Content (VRC) generated in the region is not less than 50% or 60%. The above three are parallel relations, as long as any one of them can be confirmed as the country of origin of the United States, Mexico and Canada.
Specifically, the analysis can be divided into the following scenarios:
1. Mexico imports unwrought rolled aluminum and aluminum alloy (HS 7601) from China and Russia for further processing
Mexico imports unwrought rolled aluminum and aluminum alloy remelting processing and production related products from China and Russia: the first type is aluminum alloy, the origin has not changed, and it is still subject to 10% tariff; The second category is aluminum strip, aluminum foil, aluminum extrusion and other 232 aluminum products involved in the case, even if its HS code change, the origin change to Mexico, but if its primary aluminum and melting and casting links involve China and Russia, will also be levied 10% tariff; The third category is aluminum alloy wheels and other aluminum products, because they are not within the scope of 232 investigation, no tariffs will be imposed. Since China rarely exports primary aluminum, and rarely exports aluminum alloys in general trade, the trade impact of this category does not involve China.
2. Mexico imports aluminum and products from China and Russia (7603-7616) and further processes them
According to the production process and cost of the product, in theory, some hot-rolled billets, cast-rolled coils, cold-rolled materials, etc. (collectively referred to as aluminum foil billets) are cold-rolled and foiled to produce aluminum foil in Mexico, or hot-rolled thick plates are cut into aluminum rods, and the origin of the product can be changed, but the product is still within the range of 232, and if the source of the original aluminum is strictly traced or the smelting process is still subject to a 10% tariff. It is also the main variety affected by the US-Mexico policy. If it is processed into aluminum products or aluminum containing goods, its origin has changed, but most of the products are not within the scope of the 232 investigation and will not be subject to tariffs. If only the aluminum is simply cut and packaged, its origin does not change, it is no different from the direct export of the country of origin to the United States.
Take aluminum and aluminum alloys, aluminum foil billets, tank materials, aluminum cables, etc., as examples. It can be seen that whether the certificate of origin of the product is changed after processing in Mexico and whether the type of the final product is within the scope of the 232 investigation are the main influencing factors of this policy adjustment.
According to the current United States-Mexico-Canada Agreement, the aluminum strip imported from Mexico (excluding aluminum foil billets, hot-rolled thick plates, etc.), aluminum bar profiles, aluminum foil, aluminum tubes, aluminum tube accessories, etc., can only be consumed locally and cannot be directly re-exported to the United States; And processed products or aluminum containing goods in Mexico, such as aluminum doors and Windows, aluminum foil lunch boxes, etc., regardless of whether the original aluminum source or smelting link involves China and Russia, because the relevant products are not within the scope of the 232 investigation, exports to the United States will not be imposed 10% tariffs. Therefore, the adjustment of the United States' aluminum import policy to Mexico will mainly affect the aluminum and aluminum alloys exported by China and Russia to Mexico, as well as some aluminum materials that can change the origin.
It should be noted that the above analysis is based on Mexico's direct imports from China and Russia, if Mexico imports aluminum products from other countries or regions, the source of primary aluminum or casting links involving China and Russia, will also be treated by the same rules.
3. Specific impact analysis
1. China: Some varieties are limited and the overall impact is limited
Aluminium and aluminium alloys: China is the world's largest primary aluminum and aluminum alloy production country, but mainly to meet domestic consumption demand, the current ordinary primary aluminum and aluminum alloy imposed 30% export tariffs, therefore, the export of primary aluminum is mainly for the customs special supervision of the import and export of goods (accounting for 99.8%), aluminum alloy is mainly for processing trade exports of recycled aluminum casting aluminum alloy, general trade is very little. And Mexico is not a major exporter, because it will not be affected by relevant policy changes.
Aluminum: Aluminum strip is China's largest export variety to Mexico, and hot rolled thick plate, aluminum foil blank will be the key products affected by the adjustment, according to 76061290 (aluminum alloy rectangular plate, sheet, thickness > 4mm) and 76069200 (other aluminum alloy plate, sheet and strip, thickness > 0.2mm) two tax code statistics, In 2023, the export volume to Mexico is about 21,000 tons, accounting for 5.7% of the exports of the two tax codes.
2. Russia, Belarus, Iran: primary aluminum products are excluded from export
Russia is an important aluminum production and export country in the world, in 2021 exports of aluminum and aluminum alloy 3.45 million tons, aluminum and aluminum products 540,000 tons, of which 80,000 tons of aluminum and aluminum exports to Mexico, accounting for 2.3% of its total exports, aluminum and products exports at the level of 1,000 tons. Iran and Belarus together export about 240,000 tons of aluminum and aluminum alloys, and direct exports to Mexico are negligible. Therefore, the United States through smelting and casting requirements, restrictions on Mexico's use of aluminum and processing billets from relevant countries, the direct impact is small, but will aggravate the global exclusion of aluminum products in Russia and other countries, which is another move after the United States and Britain jointly restricted Russian aluminum and other metals in April this year.
3. The United States: "Form is greater than content"
In 2023, the United States imported about 5.79 million tons of 232 products (excluding 761,699 products). Among them, 4.16 million tons of unforged rolled aluminum and aluminum alloys, mainly from Canada, the United Arab Emirates and Australia, 41,000 tons of imports from Mexico, accounting for only 1%; Imports of 7604-7608 aluminum and 7609 aluminum pipe accessories totaled 1.63 million tons, mainly from Canada, China, South Korea, from Mexico imports only 60,000 tons, accounting for 3.7%. It can be believed that the impact of the United States trade policy adjustment is at best 100,000 tons, and the current impact is relatively small, but its long-term intention to prevent aluminum products from China and Russia from entering the United States through Mexico is very clear. Of course, if China and Russia use aluminum processing billets from other countries and regions to produce aluminum and export it to Mexico and then the United States, it is not within the scope of the investigation.
The characteristics of Mexico's aluminum industry are as follows: First, aluminum supply is highly dependent on imports. Because there is no electrolytic aluminum production, Mexico mainly relies on imports and recycled aluminum production to meet domestic demand, and in 2021 Mexico imported 2.23 million tons of aluminum and aluminum, accounting for 64% of its total supply. Second, the export destination is highly concentrated, in 2023, Mexico's exports to the United States under the 76 chapter of aluminum products amount of 2.13 billion US dollars, accounting for 87% of its exports, of which 232 products exported to the United States about 570 million US dollars. Although it is not possible to determine how many products of primary aluminum sources and casting links involve China and Russia, but if in the short term Mexican enterprises or traders can not provide the "birth certificate" of the product, its exports to the United States will be seriously affected, and then affect their own industrial development. At the same time, local enterprises seeking new raw material import partners are also facing problems such as prolonged procurement cycle and increased import costs.
Iv. Summary
In the context of the weak global economic recovery and the escalation of geopolitical conflicts, the United States and Mexico jointly pursued and blocked the aluminum industry of China and Russia, destroying the global industrial division of labor, and increasing the uncertainties facing the global economy. Although the US-Mexico trade blockade has limited direct impact on China's aluminum processing exports, there is a possibility that Mexican enterprises will abandon Chinese aluminum products in order to avoid export barriers, exacerbating the fragmentation of the global economy. In order to cope with the increasingly complex international situation, Chinese aluminum enterprises should actively tap the new momentum of domestic consumption, expand overseas markets, and accelerate the pace of "going out", carry out international production capacity cooperation, change from product output to technology and management output, and create a transnational industrial chain with global influence.
