The U.S. Tries to Close a Trade Loophole

Growing up near a river taught me how water will always find its own level. During floods, stacked sandbags were rarely impervious, and submersible pumps were no match for a river's flow. Houses on our street were at risk not from direct inundation, but from the river filling storm drains and backing into home sewer lines.

The global economy has been reckoning with a flood of exports out of China, and hastily erected barriers are struggling to contain the flow. The United States has led the push against China's export power, levying an array of tariffs and export controls meant to reduce the competitiveness of Chinese output. These polices are showing some evidence of progress, such as the share of U.S. imports from China now falling to second place behind a resurgent Mexico. But some of that shift is likely a redirected flow, not the end of the flood.

The world has become awash in exported metals from China. The U.S. has tried to reduce its use of these metals by levying tariffs of 25% on imported steel and 10% on imported aluminum since 2018. Only a handful of nations have negotiated exceptions, including America's neighbors through the U.S.-Mexico-Canada Agreement (USMCA) free trade deal.

As China's obstacles at the U.S. border accumulated, Chinese metals started flowing south to Mexico, and then finding their way north with the advantage of the USMCA. This allowed China to keep its foundries running, despite much lower domestic demand for new construction.