U.S. Keeps USMCA Tariffs, Ups Regional Trade Tension

U.S. Trade Representative Katherine Greer announced on May 27, 2026, that the United States will maintain existing Section 232 national security tariffs on steel and aluminum imports from Mexico and Canada. The decision extends the 25% tariff on imported steel and 10% tariff on aluminum, worth over $20 billion in annual bilateral trade, that were previously suspended under the USMCA framework. This move represents a significant hardening of U.S. trade policy and directly contradicts expectations for tariff relief under the continental trade pact.

Context — why this matters now

The immediate catalyst is the conclusion of a mandatory USMCA joint review, which provided a formal opportunity to reassess the tariff suspensions. The review's outcome signals a strategic pivot by the U.S. administration to prioritize domestic industrial output over diplomatic trade harmony with its closest allies. This action revives a major point of contention from the 2018-2019 period, when the original tariffs sparked retaliatory measures and threatened to derail the initial USMCA negotiations.

The current macro backdrop features elevated inflation and a Federal Funds target rate above 5%, pressuring manufacturing costs. The decision to retain tariffs aims to shield U.S. producers from global price competition, aligning with a broader industrial policy agenda. This comes amid heightened scrutiny of supply chain resilience, particularly for defense and critical infrastructure materials where steel and aluminum are foundational inputs.

Historically, the suspension of these tariffs in 2019 was a key concession to secure Canadian and Mexican ratification of the USMCA. Their reinstatement undermines a core tenet of the agreement designed to foster tariff-free North American trade. The last comparable breach of a major U.S. trade pact occurred in 2002 with the imposition of steel safeguards under Section 201, which were withdrawn after a World Trade Organization ruling and retaliatory tariffs from the European Union.

Data — what the numbers show

The U.S. imported 4.2 million metric tons of steel from Canada in 2025, representing approximately 17% of total U.S. steel imports. Imports from Mexico totaled 3.8 million metric tons. The 25% ad valorem tariff applies to this volume, which had a declared customs value of $8.7 billion from Canada and $7.5 billion from Mexico last year.

For aluminum, the 10% tariff impacts a larger share of trade. Canada is the largest foreign supplier of aluminum to the U.S., providing nearly 2.8 million metric tons in 2025, or about 56% of total imports. The American Primary Aluminum Association has cited a domestic operating capacity of 1.1 million tons, meaning imports are essential for meeting demand. The benchmark U.S. Midwest premium for aluminum delivery has averaged $260 per metric ton over the past quarter, a key cost component for manufacturers.

Metric	Before Tariff Suspension (2018)	After Suspension (2023)	Post-Reinstitution Impact (2026 Est.)
U.S. Steel Import Volume from Canada (MMT)	5.1	4.2	Projected decline to ~3.5
U.S. Aluminum Import Volume from Canada (MMT)	3.2	2.8	Projected decline to ~2.3

A peer comparison shows the U.S. steel industry's capacity utilization rate at 78%, versus a global rate estimated at 74%. The SPDR S&P Metals and Mining ETF (XME) is down 4% year-to-date, underperforming the S&P 500's gain of 8% over the same period.

Analysis — what it means for markets / sectors / tickers

The direct beneficiaries are domestic steel producers like Nucor (NUE), Cleveland-Cliffs (CLF), and U.S. Steel (X). These firms gain protected market share and pricing power, potentially boosting EBITDA margins by 300-500 basis points in the near term. Major aluminum producers with U.S. operations, like Alcoa (AA), also stand to benefit from reduced import competition.

The losers are downstream manufacturing sectors and consumers. Automakers Ford (F) and General Motors (GM) face higher input costs for vehicles assembled in North America. Construction and appliance manufacturers will see margin compression. Canadian steel giants like Stelco Holdings and Mexican producer Ternium (TX) face an immediate loss of market access, pressuring their revenues. A counter-argument is that protected industries may see reduced incentive for innovation and efficiency gains, potentially harming long-term competitiveness.

Positioning data indicates institutional investors are increasing long exposure to the Materials sector ETF (XLB) while shorting consumer discretionary stocks via the Consumer Discretionary Select Sector SPDR Fund (XLY). Flow is moving out of integrated North American industrial plays and into pure-play U.S. domestic producers. The risk of retaliatory tariffs from Canada and Mexico on U.S. agricultural or manufactured exports creates a clear headwind for sectors like agriculture and machinery.

Outlook — what to watch next

The primary catalyst is the formal response from the Canadian and Mexican governments, expected within 30 days. Both nations have treaty rights under USMCA Chapter 31 to request dispute settlement consultations, which could be initiated by late June 2026. An escalation to a formal panel is likely if consultations fail, with a ruling possible within 180 days.

Market participants should monitor the U.S. Midwest hot-rolled coil steel price, a key benchmark. A sustained move above $850 per short ton would confirm tariff efficacy for domestic producers but signal severe cost pressure for buyers. The CFNAI, the Chicago Fed National Activity Index, will be crucial to watch for early signs of manufacturing slowdown due to trade friction.

Levels to watch include the USD/CAD exchange rate holding above 1.38 and the USD/MXN rate holding above 17.50, as tariff friction typically weakens the currencies of exporting nations. A breakdown in negotiations could see Canada impose retaliatory tariffs on U.S. bourbon, dairy, or passenger vehicles, sectors historically targeted in prior disputes.

Frequently Asked Questions

What does the USMCA tariff decision mean for car prices?

The reinstated tariffs directly increase the cost of steel and aluminum used in vehicle manufacturing. Analysts estimate this could add $150 to $300 to the production cost of an average vehicle built in North America. These costs are likely to be passed through to consumers over the next two quarters, contributing to inflationary pressure in the new and used vehicle markets. Automakers may accelerate sourcing shifts to suppliers outside the tariff zone, complicating supply chains.