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U.S. Tariffs Will Send Mexico Gold, Silver Abroad for Processing

Laura Millan Lombrana
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U.S. Tariffs Will Send Mexico Gold, Silver Abroad for Processing

(Bloomberg) -- Donald Trump’s tariffs targeting Mexico risks backfiring on the U.S., at least in the global metals market.

Miners of Mexican precious metals are unlikely to be hit significantly if Trump imposes levies on goods from its neighbor, which is the biggest source of U.S. silver imports and its second-largest gold supplier. Instead, American processors will probably bear the brunt of the latest trade spat, as they lose out on supply that’s driven away to refiners and smelters elsewhere.

“Gold and silver markets are fully global, with metal moving all around between countries already,” said Jeffrey Christian, managing director at industry researcher and consultant CPM Group. “The negative impact will be on U.S. smelters and refiners,” if tariffs are imposed on Mexican goods, he said in an email.

The prospect of U.S. industry missing out on refining precious metals from one of their top suppliers signals the risk of Trump’s policies, which the president says he’s implementing to advance America’s interests. With a trade spat already raging with China -- another major trade partner -- U.S. employers in May added the fewest workers in three months while wage gains cooled. That suggests broader economic weakness as the dispute weighs on growth.

The Trump administration is planning to proceed with levies on imports from Mexico in the event that talks fail to satisfy his concerns on immigration from the neighboring nation. A 5% levy will be placed on goods starting June 10, with monthly increases thereafter.

Mexico accounted for about half of the country’s silver imports from 2014 to 2017, according to the U.S. Geological Survey. It was also just behind Canada as a source of gold. The precious metals are used in fabricated products including jewelry, as well as for industrial purposes such as manufacturing of electronic products, solar panels or mirrors.

Surplus Capacity

A global surplus of precious-metal refining capacity means that companies mining gold and silver in Mexico and processing it in the U.S. could simply look for facilities in other countries, before shipping the final product to the U.S., according to CPM’s Christian. The result will be “a loss of jobs and business for U.S. companies and workers, and no material impact on Mexican production or producers,” he said.

Canada’s second-largest gold miner, Agnico Eagle Mines Ltd., produces about 300,000 ounces of gold in Mexico that it refines in the U.S. The company would send that somewhere else if tariffs are implemented, Chief Executive Officer Sean Boyd said on Wednesday.

What’s more, Agnico Eagle is already reaping some benefits from trade tensions that have strengthened the U.S. dollar at the expense of the Mexican and Canadian currencies, significantly reducing Agnico’s costs, he said.

No. 1 Gold Miner

Top gold miner Newmont Goldcorp Corp. is watching developments closely, Chief Executive Officer Gary Goldberg said on Thursday. Most of its production from Mexico is exported as concentrate and shipped to various countries, with “very little” going into the U.S., he said.

Grupo Mexico-owned Southern Copper Corp. processes some of the ore it produces in Peru and Mexico at the parent company’s Asarco smelter in Hayden, Arizona. That amount is small compared to what the company processes in its own smelters in Mexico and Peru, a company official said in an email. The official did not comment on the company’s plans if tariffs were implemented.

Mexico also accounted for 11% of steel imports to the U.S. last year, according to the U.S. Department of Commerce. Imports of iron and steel mill products reached $1.8 billion in 2018, the highest in four years, according to the U.S. Census Bureau. Iron, aluminum, copper, nickel, tin and zinc imports from Mexico all rose in 2018 from the previous year, according to the bureau.

Bloomberg Economics has modeled a worst-case scenario of 25% tariffs on all U.S. trade with both Mexico and China and also added in a 10% drop in global equity prices. In that all-out trade war, global GDP in 2021 would be lower by 0.8% -- equivalent to $800 billion -- relative to a no trade war scenario.

--With assistance from Aoyon Ashraf, Danielle Bochove and Marvin G. Perez.

To contact the reporter on this story: Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Pratish Narayanan

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