Years in the making, the United States-Mexico-Canada Agreement on free trade (USMCA) is finally about to pay off for one U.S. company: Nucor (NUE 0.31%), one of the world's largest steelmakers.
Signed into law by President Trump on November 30, 2018, USMCA encourages production of automobiles (among other things) in North America. It does this by instituting zero import tariffs on goods produced in Mexico, Canada, or the U.S., and exported to one of those three countries, provided that 62.5% (rising to 75% over time) of the automobile's "content" is certified manufactured in North America. In particular, 70% of a car's steel and aluminum must originate in North America.
That is why Nucor wants to do more business in the North American nation where labor is cheapest: Mexico.
Image source: Getty Images.
A little over a year ago -- right before USMCA entered into force -- Nucor formed a joint venture with Japan's JFE Steel to build a $270 million steel plant in Silao, Guanajuato, in central Mexico, capable of producing 400,000 tons of hot-dip galvanized steel sheet annually.
Production was supposed to have begun late last year but has been delayed. This morning, however, Nucor announced that "Nucor-JFE Steel Mexico, S. de R.L. de C.V." is finally up and running after beginning its "trial production" period.
In a statement, Nucor explained that "Nucor-JFE is well-positioned to serve the large number of automakers who have built facilities in central Mexico," where "automotive production ... is expected to continue to grow and the new United States-Mexico-Canada Agreement (USMCA) increases the amount of North American content required in cars and trucks to avoid tariffs imposed by the United States."
