Metals tariffs stall a near finished US Mexico bargain as both capitals signal a deal is close but not done
WASHINGTON, Oct. 22, 2026
The United States and Mexico have spent the better part of six months negotiating a tariff settlement that both governments describe as nearly complete. This week they described it that way again, and once again neither side produced a text, a schedule, or a single agreed rate. The sticking point, according to officials and negotiators on both sides of the border, is the same one that has held the talks since late summer: what Washington is prepared to do about the 50 percent Section 232 duties on steel and aluminum and the 25 percent duty on motor vehicles.
Mexican President Claudia Sheinbaum told reporters at her morning press conference on Tuesday, Oct. 20, that an agreement is “very close” but that “there are still some issues.” She said a great deal of progress had been made and that Mexico had “not yet reached a final agreement.” Her remarks followed comments by President Donald Trump at a rally in Park City, Kansas, on Monday, Oct. 19, where he told the crowd that “Mexico and us are very close to a great deal” and framed the objective in deficit terms. “We’re not going to lose $150 billion with Mexico,” Trump said, adding that the deal “will get that number way down, maybe down to zero.”
The two statements, delivered roughly twenty four hours apart, are the clearest signal in weeks that the bilateral file is active. They are also, read closely, a description of an impasse. Trump is selling a deficit outcome. Sheinbaum is seeking tariff relief. The gap between those two objectives is the negotiation, and it has not closed.
What Mexico is asking for
Mexico’s negotiating position has been consistent and narrow. Sheinbaum restated it on Tuesday and has restated it repeatedly since the summer: the country wants the deepest achievable reduction in US tariffs on vehicles, steel and aluminum, and it wants a commitment that no new US duties will be applied while the bilateral and trilateral reviews continue.
Those three product groups are not arbitrary. They represent the concentrated exposure of Mexico’s export economy to US trade measures. The automotive sector alone accounts for roughly 3.6 percent of Mexican gross domestic product and about 18 percent of manufacturing GDP, and supports more than one million jobs, according to figures compiled by Rio Times Online from Mexican industry and government sources. The sector directly employs about 800,000 workers, Mexico Business News reported, and exports the overwhelming majority of its vehicle output to the United States. Mexico is also the leading foreign supplier of automotive parts to the US market.
The tariff architecture Mexico is trying to unwind has two layers. Vehicles that do not qualify under USMCA rules of origin face a 25 percent duty. Vehicles that do qualify face the duty only on non US content, which Mexican officials estimate produces an effective rate near 15 percent. Qualification itself is demanding. A vehicle must meet a 75 percent North American content threshold, must have 40 to 45 percent of its value produced by workers earning at least $16 per hour, and must incorporate 70 percent regional steel and aluminum.
Steel and aluminum are simpler and harsher. Mexican shipments of those metals face the 50 percent Section 232 rate. Under the June 1, 2026 modification to the Section 232 program, USMCA qualifying Canadian and Mexican goods have the 25 percent derivative rate applied only to non US content, with a floor of at least 15 percent effective. That floor is precisely what Mexican negotiators have been trying to move.
Reporting in Mexico Business News on the shape of the proposed interim arrangement indicated that Washington had floated cutting the light vehicle tariff from 25 percent to 15 percent. Mexican officials calculated that the effective burden would land somewhere between 10 and 12 percent, because the headline rate applies only to non US content. Mexico has pushed for terms better than those Washington offered Ottawa, which carried a nominal 15 percent rate that could fall to roughly 7 percent at maximum regional content.
On metals, no comparable figure has surfaced. That absence is the story.
The Lutnick question
A Wall Street Journal report on Oct. 15, citing unnamed people familiar with the talks, attributed the stall to Commerce Secretary Howard Lutnick. According to that account, Lutnick declined to support meaningful reductions in the 25 percent vehicle tariff or the 50 percent metals tariffs, and also blocked lower duties on finished goods made from steel and aluminum. Domestic aluminum producers, the report said, had lobbied the administration to hold the line.
The allegation has institutional logic behind it. Section 232 is administered by the Department of Commerce. Lutnick’s department owns the national security tariff program that Mexico is asking to have loosened, and the domestic metals constituency that benefits from it is organized, vocal and concentrated in politically relevant states. Lutnick is not, however, the lead negotiator. US Trade Representative Jamieson Greer has run the bilateral file and has held four formal rounds with Mexican Economy Secretary Marcelo Ebrard since May 2026, the most recent in Washington in September.
Mexican officials have declined to endorse the Journal’s framing. Ebrard said on Oct. 16 that in his most recent conversation with Lutnick he did not come away with the impression that the commerce secretary opposed reducing the tariffs. Mexican Ambassador Roberto Lazzeri described the talks as “a little bit stuck on the details” and identified the Section 232 steel and aluminum duties as the central sticking point. Luis Rosendo Gutiérrez, another Mexican official involved in the process, said negotiations were progressing despite the reported impasse. A Commerce Department spokesperson characterized the department’s engagement with Mexico as “constant dialogue.”
Sheinbaum, for her part, offered a notably warm read of the US side on Tuesday. She said the American attitude was “very good” and named both Lutnick and Greer. She also described the US approach as a set of “proposals” in which Washington offered to cut a given tariff in exchange for Mexican concessions, which she summarized without detail as “A, B, C, D.”
What Mexico will not do, she said, is accept anything that falls outside its constitution and laws, or anything it expects to damage the national economy or employment.
Why the USMCA backdrop matters
The bilateral talks are running inside a larger structural problem that neither side has resolved.
The USMCA entered into force on July 1, 2020, replacing NAFTA, with a joint review due after six years. That review arrived on July 1, 2026. Mexico and Canada both sought the automatic sixteen year extension the agreement contemplates. The United States declined, opting instead for a shorter horizon with annual reviews. The agreement remains in effect until July 1, 2036, but it now operates year to year rather than on a long fixed term.
The practical consequence is that the predictability North American supply chains were built on has been replaced by a rolling renewal. For an automaker deciding where to site a plant that will take four years to build and fifteen years to pay back, an annual review is close to no agreement at all. Sheinbaum has said the longer extension is not off the table in a future round. “That possibility is not closed,” she said earlier this month. But it is not on the table now.
Canada’s parallel track collapsed in late August after what Mexican and Canadian accounts describe as last minute US demands, and the two countries have since moved into an open trade conflict that includes 50 percent US duties on Canadian goods and litigation now pending in US courts. Mexico is the only North American partner still in formal bilateral negotiations with Washington, which gives Mexico both leverage and exposure. It is the remaining counterparty, and it is also the remaining target.
The deficit arithmetic
Trump’s framing rests on a number, and the number is real. US Census data cited by El Economista put US imports from Mexico at $419.34 billion for January through August 2026 and US exports to Mexico at $263.47 billion over the same period, producing a bilateral goods deficit of $155.87 billion. That is up 21.2 percent from the comparable 2025 period. Mexico ranked as the second largest surplus partner of the United States, behind Vietnam.
Sheinbaum has acknowledged the political weight of that figure and has described Mexico’s strategy for addressing it. Last week she said Mexico was working to reduce the US deficit primarily by purchasing more American goods and by ending purchases from other suppliers. Natural gas has featured in those discussions, and the Financial Times reported that Trump raised energy arrangements with Sheinbaum while the trade talks were stalled.
The arithmetic here deserves a skeptical look, because it is doing a great deal of political work. A bilateral goods deficit of $156 billion over eight months cannot plausibly be driven to zero through Mexican procurement commitments. Mexican purchases of US goods ran at $263 billion over the same period. Closing the gap would require Mexico to increase its US sourcing by roughly 60 percent, or to reduce its exports to the United States by more than a third, or some combination. Neither is achievable on any timeline relevant to a trade negotiation, and the second would be catastrophic for Mexican employment, which is exactly the outcome Sheinbaum has said she will not accept.
There is also a composition problem. A large share of what crosses the border northbound is intermediate goods moving inside integrated production networks, much of it containing US content that crossed southbound first. Counting those flows as a one directional deficit overstates the economic transfer involved. That is not a new observation, but it is a relevant one when the headline number is driving the negotiation.
The industry view
Mexican automotive producers have been explicit about the damage already absorbed. Rogelio Garza, president of AMIA, the Mexican automotive industry association, wrote to Greer that “the implementation of the Section 232 tariffs has already harmed an industry that is vital.” AMIA asked in May 2026 that the treaty review be used to eliminate automotive tariffs outright. Mexico has rejected a US proposal that would impose a 50 percent American specific content requirement on vehicles.
The export data support the industry’s account. Mexican automotive exports to the United States fell 7.2 percent in 2025 to $168.4 billion, and then fell 11.3 percent year on year in the first quarter of 2026 to $38.1 billion. Passenger car exports fell 9.8 percent in 2025 and 22 percent in the first quarter of 2026. Trucks and buses fell 18.7 percent in the quarter. Auto parts, the most integrated and least substitutable category, fell only 1.1 percent. The projected full year 2026 decline for the sector is around 10 percent.
That pattern is worth reading carefully, because it tells importers something about where tariff pass through is landing. Finished vehicles, which are substitutable at the sourcing level and which face the full headline rate, have fallen sharply. Parts, which are embedded in production lines that cannot be relocated on a quarterly timescale, have barely moved. The tariff is suppressing the flows that can move and is simply being paid on the flows that cannot.
Investment data tell a parallel story. Deloitte figures for the first half of 2026 show $34.9 billion in foreign direct investment into Mexico, but net new investment down 23 percent year over year. Announcements numbered 73, down 55 percent, with an announced value of $36.35 billion, down 20.7 percent. Of $286.3 billion in investment announced between 2023 and June 2026, 11.3 percent is operational and 42 percent is under construction. Susana Duque of COMCE noted that Mexico has risen to tenth place among global FDI recipients. Her colleague Juan Castañón cited investor concern about Mexico’s legal framework, particularly energy sector capital requirements.
The midterm clock
Both governments had reason to want an announcement before the US midterm elections on Nov. 3. That incentive appears to be weakening. Unnamed US officials have indicated a growing willingness to let any announcement slip past the election date, and Canadian Broadcasting Corporation reporting this week suggested no US deal with Canada is expected before the midterms either.
The political calculation is not hard to reconstruct. A deal that visibly cuts tariffs on Mexican steel, aluminum and vehicles is a difficult thing to announce in the final two weeks of a campaign in which tariffs on those products are being defended as a jobs policy. The domestic metals lobby that reportedly pressed Lutnick to hold the line has every reason to press harder as the election approaches. Conversely, a deal announced after Nov. 3 costs the administration nothing politically and allows the tariff position to be held through the campaign.
For Mexico, waiting is more expensive. Each additional quarter of 50 percent metals duties and 25 percent vehicle duties compounds into the investment numbers above. The peso has reflected that pressure, closing at roughly 18.41 per dollar in mid October, its weakest level since late November 2025.
What this means for US importers and exporters
For US companies with Mexican supply chains, the operative fact is that nothing has changed and nothing is scheduled to change. Planning assumptions for the fourth quarter of 2026 and the first quarter of 2027 should continue to carry the 50 percent Section 232 rate on steel and aluminum and the 25 percent rate on non qualifying vehicles, with the USMCA content carve outs applied where goods actually qualify.
Several practical implications follow.
First, USMCA qualification is worth more now than at any point since the agreement entered into force. The difference between qualifying and non qualifying treatment on a vehicle is the difference between an effective rate near 15 percent and a headline rate of 25 percent. On metals derivatives, qualification determines whether the 25 percent derivative rate applies to full value or only to non US content. Companies that have treated origin certification as a compliance formality should treat it as a margin item. That means auditing supplier declarations, verifying the labor value content calculation, and confirming the regional steel and aluminum thresholds rather than relying on blanket certifications.
Second, the Section 232 full value rule is the quiet cost driver. Since the April 6, 2026 proclamation, the duty base for derivative articles shifted from metal content to entire product value. A $1,000 article containing $200 of steel owed $100 under the old 50 percent metal content rule. Under the 25 percent full value rule it owes $250. The headline rate fell and the bill rose. Importers who modeled the April change as relief should re model it.
Third, the derivative inclusions process is no longer predictable. The April 2026 proclamation terminated the public petition mechanism for adding products to the derivative lists. Commerce and USTR may now add products on a rolling basis without the prior notice and comment rhythm. A proposed August 6, 2026 addition of fourteen categories, including aluminum powder, fire extinguishers and certain trailers, illustrates the pace. Companies whose products sit near the 15 percent metal content exemption threshold should expect that position to be contestable.
Fourth, contract allocation of tariff risk matters more than tariff forecasting. Given that the negotiation may conclude at any point over the next several months, or may not conclude, supply contracts covering Mexican origin goods should specify clearly who bears duty increases and who captures the benefit of decreases. A deal that cuts the vehicle rate from 25 percent to 15 percent creates a windfall. The question of whose windfall it is should be answered in the contract, not after.
Fifth, any eventual agreement is likely to be an interim or partial instrument rather than a comprehensive settlement. The language from both capitals points to a package in which specific tariff lines are reduced in exchange for Mexican commitments on transshipment controls, export controls, supply chain security, and measures directed at non market economies, principally China. Analysts Diego Marroquín of CSIS and Juan Baker of the Georgetown Americas Institute have both flagged that Washington is unlikely to concede tariff reductions “without asking Mexico for something in return.” Importers sourcing through Mexico from Asian suppliers should assume that transshipment scrutiny tightens as part of any deal, not after it.
What to watch
Three signals will indicate whether this moves.
A published joint statement or term sheet, rather than another round of “very close” language from either leader, would be the first genuine indicator. Neither government has released a draft text, a timetable, or a list of agreed points.
A Federal Register notice modifying the Section 232 proclamations for Mexican origin steel, aluminum or derivative articles would be the operative legal step. Tariff relief on metals cannot be delivered by communique. It requires a proclamation modification, and that document will be visible before any political announcement is fully effective.
Finally, the handling of the USMCA annual review schedule will indicate whether the bilateral track is a substitute for the trilateral agreement or a supplement to it. It remains unclear whether a separate US Mexico arrangement would sit alongside the three country pact or begin to displace it. That ambiguity is itself a planning risk for any company that structured its North American footprint around USMCA preference.
For now, the position is unchanged. The deal is very close. It has been very close since September.