Insights 
VT 
The US and Mexico are progressing towards an agreement to eliminate 50% tariffs on steel imports imposed under President Donald Trump. This deal involves setting a cap on Mexican steel imports, based on historical volumes.
The proposed cap is set to surpass restrictions from a 2019 agreement. The final agreement will require approval from Trump. Mexico’s Economy Minister, Ebrard, argues that the tariffs are unfair, as the US exports more steel to Mexico than the reverse.
Potential Trade Breakthrough
This article highlights a potential trade breakthrough wherein the United States and Mexico appear to be moving closer to a revision of steel tariffs originally established during the previous US administration. The original tariffs—50% on steel imports from Mexico—were designed to protect the domestic industry in the US. However, both nations now seem ready to soften those measures, in exchange for new import volume controls.
The proposed update would replace a blanket tariff with a system of quotas, whereby Mexico agrees to limit the amount of steel it exports to its northern neighbour. These quotas are to be based on historic shipment levels, though the precise figures have yet to be released. Importantly, the cap would allow Mexican exporters to send more steel across the border than they could under a previous bilateral arrangement made in 2019. That deal imposed harder constraints during a separate phase of trade negotiations.
Ebrard, speaking on behalf of the Mexican government, described the existing tariff structure as asymmetrical, noting that American steel flows south at a higher volume than Mexican steel heads north. His comments underline the sense, at least from Mexico’s side, that existing trade measures have tilted the playing field.
For us, observing movements in spreads and curves tied to commodities, this change—once confirmed—may impact correlated contract volumes and volatility assessments. Caps based on retrospective data imply a moderate and controlled increase in Mexican steel imports, rather than a sudden surge. Therefore, rather than pricing in supply shocks, we might anticipate a stabilisation in forward curves.
Shifts in Trade Management
Should Trump rubber-stamp the agreement, the reduced tariffs could moderate costs for industrial importers in sectors that rely on intermediary steel products. That dynamic may, in turn, alter the relative strength between materials producers and end users. We may need to reprice certain hedges and swaps related to North American metals exposure, particularly those structured with a sharp upward bias over short time horizons.
The shift from punitive tariffs to structured volume ceilings appears to reflect a broader pivot towards what we would view as politically acceptable trade management. This path could reduce arbitrariness in price-setting environments, provided the caps do not face further policy volatility. Watch closely how spreads between US and Mexican steel benchmarks respond in the next fortnight; the realignment of flows could bring narrowing differentials, particularly in hot-rolled or rebar-linked contracts.
We should closely examine margin demand in steel-linked derivatives both onshore and offshore. Declines in tariff costs can reduce uncertainty premiums baked into contracts, leading to thinner cushions in some strategies. It may be appropriate to reassess stress scenarios in portfolios sensitive to bilateral trade metrics, with adjustments made where positions leaned heavily on continuation of restrictive tariffs.
Finally, if quotas are introduced and the data behind them becomes public, it may introduce a new and predictable rhythm to cross-border trade in steel. This may benefit directional structures and calendar spreads linked to volume expectations rather than simple price dislocation. Prepare for a transition from deeds shaped by political posturing to terms anchored in repeatable flows. Volatility around announcement headlines may give way, in time, to option markets reflecting a calmer path ahead.
