CPA recently detailed the “Fortress North America” mirage: why substituting a common North American tariff perimeter for America’s national tariffs is a bad idea on its own, and why — in any event — neither Canada nor Mexico actually supports the idea when it gets down to brass tacks.
That analysis detailed the failure of the USMCA Automotive Rule of Origin, as well as the rules of origin for aluminum and steel, known as “smelt and cast” and “melt and pour” respectively.
The automotive rule of origin dates back to July 2020, while the aluminum and steel rules were deployed in July 2024 by the Biden administration.
Product categories included in the scope of the aluminum and steel Section 232 actions had been duty-free for imports from Canada and Mexico since May 2019. But when the Biden administration deployed those rules in 2024, the covered imports became subject to Section 232’s supplemental tariff unless they satisfied the rules’ requirement that the underlying metal be formed in North America.
CPA’s Andrew Rechenberg correctly predicted “little to no effect” from the Biden administration’s imposition of melted & poured. The vast majority of Mexico’s exports would continue duty-free treatment and avoid the supplemental 25% from Steel 232. He was proven right within weeks: two months after the rule took effect, Zekelman Industries announced the closure of its Chicago conduit plant, citing Mexican imports.
Aluminum’s smelt and cast was even more insignificant, as at the time the supplemental tariff was a mere 10%.
Nonetheless, while the rules have been a failure for American metal manufacturers and American automobile assembly, they have proven popular both among Washington trade remedy lawyers — who pitch them as ways to better police AD/CVD action against Chinese metal — as well as Mexico City trade negotiators, who understand that persuading Washington on the efficacy of these rules is the key to securing preferential treatment for Mexican manufacturers.
Regrettably, it seems that USTR is willing to continue putting U.S. manufacturers into unlimited price competition with their lower-wage, lower-regulated counterparts in Mexico, albeit with ‘rules,’ just as they were under the Biden administration.
On September 21, Ambassador Jamieson Greer answered a Bloomberg Television question about Chinese transshipment by saying, “Right now we’re developing rules of origin with Mexico to make sure goods going between the United States and Mexico are really from the United States and Mexico.” It’s a reassurance he has repeated since USMCA talks resumed.
More recently, the Wall St. Journal reported that USTR is “pressuring” Mexico on new rules of origin for appliances, medical devices, and server equipment. It seems unlikely that Mexico needs any pressure, as their own government has been promoting them.
Luis Rosendo Gutierrez, Mexico’s deputy economy minister for foreign trade, is clear on the country’s priority: reduce Section 232 tariffs on aluminum, steel, and automobiles.
They’re happy to agree to any new lipstick on the free trade pig.
Why “Melted and Poured” and “Smelted and Cast” Steel and Aluminum Rules of Origin Cannot Substitute for Tariffs
The Vietnamese Ton Never Has to Cross the Rio Grande to Take U.S. Business
CPA recently detailed the “Fortress North America” mirage: why substituting a common North American tariff perimeter for America’s national tariffs is a bad idea on its own, and why — in any event — neither Canada nor Mexico actually supports the idea when it gets down to brass tacks.
That analysis detailed the failure of the USMCA Automotive Rule of Origin, as well as the rules of origin for aluminum and steel, known as “smelt and cast” and “melt and pour” respectively.
The automotive rule of origin dates back to July 2020, while the aluminum and steel rules were deployed in July 2024 by the Biden administration.
Product categories included in the scope of the aluminum and steel Section 232 actions had been duty-free for imports from Canada and Mexico since May 2019. But when the Biden administration deployed those rules in 2024, the covered imports became subject to Section 232’s supplemental tariff unless they satisfied the rules’ requirement that the underlying metal be formed in North America.
CPA’s Andrew Rechenberg correctly predicted “little to no effect” from the Biden administration’s imposition of melted & poured. The vast majority of Mexico’s exports would continue duty-free treatment and avoid the supplemental 25% from Steel 232. He was proven right within weeks: two months after the rule took effect, Zekelman Industries announced the closure of its Chicago conduit plant, citing Mexican imports.
Aluminum’s smelt and cast was even more insignificant, as at the time the supplemental tariff was a mere 10%.
Nonetheless, while the rules have been a failure for American metal manufacturers and American automobile assembly, they have proven popular both among Washington trade remedy lawyers — who pitch them as ways to better police AD/CVD action against Chinese metal — as well as Mexico City trade negotiators, who understand that persuading Washington on the efficacy of these rules is the key to securing preferential treatment for Mexican manufacturers.
Regrettably, it seems that USTR is willing to continue putting U.S. manufacturers into unlimited price competition with their lower-wage, lower-regulated counterparts in Mexico, albeit with ‘rules,’ just as they were under the Biden administration.
On September 21, Ambassador Jamieson Greer answered a Bloomberg Television question about Chinese transshipment by saying, “Right now we’re developing rules of origin with Mexico to make sure goods going between the United States and Mexico are really from the United States and Mexico.” It’s a reassurance he has repeated since USMCA talks resumed.
More recently, the Wall St. Journal reported that USTR is “pressuring” Mexico on new rules of origin for appliances, medical devices, and server equipment. It seems unlikely that Mexico needs any pressure, as their own government has been promoting them.
Luis Rosendo Gutierrez, Mexico’s deputy economy minister for foreign trade, is clear on the country’s priority: reduce Section 232 tariffs on aluminum, steel, and automobiles.
They’re happy to agree to any new lipstick on the free trade pig.
No Rule of Origin for Metal Can Address the Competitive Harm Coming from Mexico’s Cheaper Metal
Start with the numbers, because the numbers are the whole argument.
Mexican steel is about 25 percent cheaper than American steel. Hot-rolled coil — the workhorse flat product — sells in the United States for roughly $1,350 per metric tonne on the CRU Midwest benchmark. The same product, delivered to a Mexican buyer in Monterrey or the Bajío, runs about $985. That is a gap of well over $300 a tonne — roughly 14 cents on every pound — and it has been widening all year (Exhibit 1).
Aluminum is starker. A U.S. extruder pays the world price plus a Midwest Premium running roughly $1.12 a pound this year. A Mexican extruder pays the same world price plus a premium that Fastmarkets assesses at the Mexican ports of roughly 18 to 20 cents. The difference is close to 90 cents a pound on an input that accounts for roughly three-quarters of an extruder’s production cost (Exhibit 2).
Until these prices converge, any lowering of the tariff is economic suicide for the American producer. And no tweaking or expansion of melt and pour or smelt and cast can do anything about it, for a reason that becomes obvious the moment you ask what a rule of origin actually does.
Washington’s Question Is About China. The Manufacturer’s Question Is About Price.
A rule of origin tells Customs where a piece of metal was formed. It says nothing — it cannot say anything — about what that metal cost.
To be fair to the rules’ champions, where the metal was formed is the question they are asking. A large part of Washington’s trade community has come to see tariffs and rules of origin chiefly as instruments of statecraft — tools for isolating China out of international supply chains — rather than as protection for the Americans who actually make things. On that view, melt-and-pour is a success if it keeps a Chinese-melted tonne out of a Mexican appliance, and the price the Mexican mill charges for its own tonne is somebody else’s problem.
It is the American manufacturer’s problem. In their determination to sanction China, the rules champions are apparently content to leave American mills, smelters, and metal fabricators in unfettered price competition with lower-wage, lower-cost Mexican competitors — so long as the Mexican metal is not Chinese. That is not a trade policy for American industry. It is a foreign policy with American industry as the bill-payer.
Consider a Mexican appliance maker that plays entirely by the rules. Its steel is melted and poured in a Mexican furnace, never within a thousand miles of a Vietnamese mill. Its extrusions are pressed from aluminum smelted in Canada. Under any conceivable melt-and-pour or smelt-and-cast standard, that product is North American through and through, and it enters the United States duty-free.
And it enters carrying a 25 percent advantage on its steel and a 90-cent-a-pound advantage on its aluminum, because the Mexican furnace sells at Mexican prices and the Canadian smelter sells at world premiums. The rule is satisfied. The harm is untouched.
This is not a hypothetical. Melt-and-pour took effect for Mexico in July 2024. Two months later, Zekelman Industries announced it would close its Wheatland Tube plant on Chicago’s Southwest Side and lay off nearly 250 workers, citing the surge of Mexican steel conduit — imports that had climbed to nearly five times the 2015–17 baseline and accounted for more than 87 percent of all U.S. conduit imports. It was Zekelman’s second conduit mill lost to Mexico, after a plant closure in Long Beach, California. Nothing in the rule was violated; the rule was simply beside the point. Conduit made from steel melted and poured in Mexico is exactly what melt-and-pour permits. It was also cheaper, and that is the only fact that mattered in Chicago.
That is the entire problem, and it does not go away with a stricter rule, a broader rule, or a rule extended to appliances, medical devices, and servers. Each of those answers Washington’s question a little more thoroughly. None of them touches the manufacturer’s. Perfect compliance and full competitive damage are the same outcome.
The Swap: How the Vietnamese Ton Takes U.S. Business Without Crossing the Border
The rules’ defenders will say they at least keep Asian metal out of North American supply chains. Actually, they don’t, and Mexico’s own statistics show why.
In 2025, Mexico produced 16.8 million tonnes of finished steel and consumed 25 million. It imported 10.5 million tonnes to cover the difference — from the United States, yes, but also from Korea, Japan, and China, which by 2023 were together supplying more than a third of Mexico’s imported steel. And in that same year, with that import dependence, Mexico exported 2.4 million tonnes of steel, 1.56 million of it to the United States.
Put those figures together and Mexico imports nearly seven tonnes of steel for every tonne it ships to the United States. A country that has to buy some eight million tonnes a year abroad just to feed its own market still found 1.56 million to sell into ours.
That is the swap. Mexico is a structural net importer of steel that nonetheless ships steel north. Every “North American-melted” tonne that leaves a Mexican mill for Texas is backfilled at home by a tonne that arrived in Manzanillo or Veracruz from across the Pacific. The Vietnamese ton never crosses the Rio Grande. It doesn’t need to. It takes the Mexican mill’s place in the Mexican market so that the Mexican mill can take an American mill’s place in ours.
Melt-and-pour was designed not to see this. It examines the certificate on the tonne heading north and finds it in order. It has no view of the tonne heading into Mexico’s domestic market that made the export possible. The same is true of smelt-and-cast, of the automotive rule, and of whatever new rule USTR is now negotiating for appliances and servers. Origin rules trace a product. They cannot trace a substitution. The mill certificate on the northbound tonne is perfectly accurate. It just describes the wrong tonne.
At today’s spread, the 1.56 million tonnes Mexico shipped north last year carried on the order of half a billion dollars of built-in price advantage — with a clean certificate on every one of them.
The defenders of melt-and-pour owe the country an answer to one question: where did the ten and a half million tonnes go? Every honest reply concedes the swap.
Mexico Already Tried Tariff-Matching. The Gap Widened.
There is a stronger version of the fortress pitch: forget rules of origin, just have Mexico match U.S. tariffs on outside metal and let the prices converge on their own. But we have now seen the experiment, and it failed.
On January 1, Mexico raised its tariff on hot-rolled coil from non-FTA countries to 35 percent. Imports fell. Mexican mills regained share. Mexican prices firmed — the Shanghai Metals Market credits the tariff directly for keeping Mexican HRC “relatively firm” at around $985 a tonne in August.
And the gap to the United States got bigger, not smaller: from roughly $300 a tonne at the start of the summer to $320–360 by September (Exhibit 1). Mexico raised its wall, and the wall raised Mexican prices — to a level still some $350 below ours.
The arithmetic explains why convergence is structurally impossible while the two walls differ. Asian hot-rolled coil is offered at roughly $500 a tonne FOB. Add freight and a 35 percent duty and it lands in Mexico around $750 to $800. That landed price caps what a Mexican mill can charge; it’s why the Mexican price sits where it does. The U.S. wall is 50 percent, on top of a domestic market that the 2025 tariffs deliberately tightened, which is why the American price sits at $1,350. The two ceilings are set by two different tariff structures. No amount of origin paperwork moves either one.
If matching a tariff rate on paper does not converge prices, a rule about where the metal was melted certainly will not.
Smelt and Cast Is Worse
Aluminum deserves its own treatment, because the smelt-and-cast concession Mexico is pursuing would not merely fail to help. It would hand Mexican extruders a permanent, sanctioned advantage.
Understand first what the rule does today. Since the April 2 proclamation, the reduced Section 232 rate on derivative products is reserved for aluminum smelted and cast in the United States — and it is now a 10 percent rate, not the exemption it once was. Canadian metal earns nothing. The eligibility threshold was cut from 95 to 85 percent U.S. metal in June.
That rule is nearly a dead letter in practice, for a simple reason: U.S. primary aluminum is scarce and expensive. Two companies operate four smelters with 1.36 million tonnes of capacity, a fraction of what the country consumes, and that metal sells at the Midwest Premium because it is the domestic substitute for tariffed imports. No U.S. smelter will sell to a Mexican extruder for less than an American extruder pays. “Eligible” metal therefore costs the Mexican fabricator roughly what it costs the American one — and the rule delivers essentially nothing.
Now consider the “North American” smelt-and-cast standard that any fortress deal implies. Canadian metal becomes eligible. Canada produces roughly three million tonnes of primary a year, the great majority of it historically sold into the United States, and Canada has no domestic tariff propping up its price. A Mexican extruder buys that metal at the Fastmarkets cif-Mexico premium — 18 to 20 cents — and ships duty-free extrusions north against a U.S. extruder paying $1.12. The 90-cent gap is no longer something the rule fails to catch. It is something the rule blesses.
There are only two ways that gap closes, and both are bad for the American producer. Either Mexico’s premium rises to the Midwest Premium — impossible, with Canadian surplus metal inside the wall — or the Midwest Premium collapses toward the Canadian netback. The second is what a fortress would actually do, and it would erase the price signal the 50 percent tariff exists to create. The Century–EGA smelter in Oklahoma, the first new U.S. smelter since 1980, and the Mt. Holly restart, were both announced this year on the strength of that signal. A North American smelt-and-cast rule is a proposal to switch it off.
Rules Are Paperwork. Tariffs Are Prices.
It is worth being clear about what the two instruments are.
A tariff is self-executing. It changes a price at the border, every time, regardless of how the goods are papered. The 2025 tariffs on Mexican steel cut Mexico’s exports to the United States by a third in a single year; Argus attributes the decline to tariffs on tonnage “that could not compete with domestic US pricing.” That is the tariff doing exactly what it is for.
A rule of origin is a compliance regime. It changes nothing at the border except the documents. It runs on mill certificates and importer attestations that Customs cannot independently verify, it invites exactly the fraud and “triangulation” that Congress has complained about for years, and — as shown above — even flawless compliance leaves the competitive harm intact. The trade remedy bar likes these rules because they are useful for tracing Chinese-origin metal in antidumping cases. That is a legitimate but narrow purpose. It has nothing to do with the price a Mexican mill charges for Mexican-melted steel.
Trading a tariff for a rule is trading a price for a promise.
Nor is a smaller tariff an answer. Suppose USTR preserves a reduced Section 232 rate on Mexico — the 15 or 25 percent figures now being floated — in exchange for the new rules. At today’s prices, a 15 percent duty on $985 Mexican hot-rolled coil adds about $150 and lands it at roughly $1,130, still more than $200 a tonne under the American price. At 25 percent it lands near $1,230, still $120 under. Closing the gap would take a duty of nearly 40 percent — and that is computed on the published delivered price; the customs value a tariff is actually assessed on is typically lower. Aluminum is no better. On an extrusion worth roughly $2.50 to $3.00 a pound, neutralizing the 90-cent metal advantage alone requires a rate above 30 percent, before a cent of Mexico’s labor advantage is counted. A 15 or 25 percent tariff does not put American producers on level ground. It just sets the discount at which they lose.
The Only Legitimate Test Is Price Convergence
If USTR is going to entertain any concession on Section 232 for Mexico or Canada, there is exactly one objective standard it should have to meet, and it is not a commitment about paperwork. It is convergence in the published price benchmarks: CRU Midwest against Fastmarkets Monterrey and Bajío for steel; the Midwest Premium against the Fastmarkets cif-Mexico premium for aluminum.
Those benchmarks are independent, transaction-based, and published weekly. They are the only way to know whether a “fortress” actually exists, as opposed to having been announced. And on today’s numbers the answer is unambiguous: some $350 a tonne on steel, 90 cents a pound on aluminum, both wider than a year ago.
Until those spreads close, every tonne of Mexican steel and every pound of Mexican-pressed aluminum admitted duty-free is a tonne or a pound of American production displaced — no matter where the metal was melted, and no matter what the certificate says. The Vietnamese ton never has to cross the Rio Grande. Under a rule of origin, it never will. It will keep taking American business from Monterrey.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
TRENDING
Why “Melted and Poured” and “Smelted and Cast” Steel and Aluminum Rules of Origin Cannot Substitute for Tariffs
Cutting China Tariffs Won’t Cut Prices
CPA Applauds Administration’s Increased Tariffs for American Aluminum Fabricators
House Ways & Means Committee Hearing Suggests Critical Minerals Partners Should Get Special Tariff Treatment
The Canada Trade Deal Needed to Collapse: Aluminum Tariff Reductions Put American Manufacturers at a Structural Disadvantage
The latest CPA news and updates, delivered every Friday.
WATCH: WORTH FIGHTING FOR
Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.
CHECK OUT THE NEWSROOM ➔