In 2020, China produced about 52 million metric tons of castings, over 20 times Mexico’s output of roughly 2.4 million including cast steel as well as cast iron and other alloys. China now pours more metal than the next several countries combined, an astonishing transformation worthy of a Hollywood coming-of-age movie.
But like in the movies, China's dominance would not go unchallenged for long. From stage right came a pair of new challenges. The first of these were Trump's 2018 tariffs, which seemingly opened the door for Mexico, or another country like India, to take the throne from China as the best cost producer of cast steel valve.
It was no secret that China’s rise was aided by its government’s pro-export policies such as tax incentives, rebates on export goods, and a tightly managed currency. Throughout the 2000s, China maintained a weak yuan relative to the dollar, which kept Chinese exports artificially cheap. U.S. and Mexican producers, by contrast, had to float with market rates. This currency policy acted like an extra tariff advantage for China.
Nobody ever said getting the best price had to be fair.
Well, that was until a guy who previously had been the host of a popular reality show became President and changed the landscape with the invocation of Section 232, a national security provision which put a 25% tariff on imported steel and 10% on aluminum. Initially, this included steel from Mexico too, but Mexico negotiated an exclusion by mid-2019 as part of the USMCA trade agreement (which replaced NAFTA). Meanwhile, under Section 301, the U.S. levied tariffs on roughly half of all Chinese exports including cast steel at 25% extra duty. Suddenly, Chinese cast components faced a steep tax in the U.S, while Mexican-made castings could enter duty-free under USMCA.
on aluminum. Initially, this included steel from Mexico too, but Mexico negotiated an exclusion by mid-2019 as part of the USMCA trade agreement (which replaced NAFTA). Meanwhile, under Section 301, the U.S. levied tariffs on roughly half of all Chinese exports including cast steel at 25% extra duty. Suddenly, Chinese cast components faced a steep tax in the U.S, while Mexican-made castings could enter duty-free under USMCA.
And just when everyone was so worried about where to find the next 'best price', suddenly 'best delivery' reminded everyone what really matters when the going gets tough. That reminder came in the form of COVID-19 which collapsed the global economy and logistics, shutting down trade completely for what seemed like forever. Many companies quickly rediscovered the value of having suppliers that could deliver by truck. Not to mention, China--the country of 'best price'--was also becoming severely impacted by dramatically rising ocean freight costs. At its worst, the cost to ship a 40-foot container from China to the U.S. averaged about 82% higher than shipping from Mexico to the U.S. And once landed in the U.S., Chinese goods still need to clear ports, adding more time. Mexican goods can often go straight to a U.S. factory or distribution center by truck with minimal delay.
The conversation on best price shifted to include terms like nearshoring or China plus one. In other words, U.S. companies learned they needed to de-risk their supply chain.