The US Department of Commerce has published procedures establishing a tariff adjustment mechanism for steel and aluminum producers in Canada and Mexico, linking Section 232 relief to commitments to build new primary production capacity inside the US. The notice, published in the Federal Register, allows producers operating in Canada or Mexico that supply US automobile or medium- and heavy-duty vehicle (MHDV) manufacturers to apply for a reduction in Section 232 duties of up to half the otherwise applicable rate. The adjusted tariff rate may not fall below 25 percent. Qualifying imports must be eligible for preferential treatment under the US-Mexico-Canada Agreement and must have been melted and poured, or smelted and cast, in Canada or Mexico.
The program is limited to primary steel and primary aluminum, defined as steel produced in a basic oxygen furnace, electric arc furnace, or other steelmaking furnace in the United States, and aluminum produced in a US smelter. Commerce has stated that only commitments to increase primary capacity are eligible because they address supply bottlenecks for downstream automobile and MHDV manufacturers. Producers working in downstream processing or fabrication are not eligible under the current procedures.
Access to the lower tariff rate is conditional on a detailed application and an ongoing compliance obligation. Producers must submit project-by-project documentation covering investment plans, production locations, projected capacity, milestone targets, supplier and contractor lists, raw material sourcing, and expected hiring tied to the new US capacity. Commerce will review each submission for commercial practicability and consistency with the procedures, and may request supplemental documentation.
Once approved, producers must submit quarterly progress reports and provide Commerce access to books and records. Tariff adjustments may be paused if Commerce determines a producer is not substantially meeting its milestones. Failure to meet commitments may result in termination of the tariff adjustment and retroactive reliquidation of prior entries at the full applicable duty rate.
The mechanism stems from Proclamation 10984, issued in October 2025, which imposed additional tariffs on imports of medium- and heavy-duty vehicles, parts, and buses under Section 232 of the Trade Expansion Act of 1962 on national security grounds, while also authorizing Commerce to adjust steel and aluminum tariffs for producers that commit to new US production capacity.
For Mexican producers, the program arrives against a backdrop of significant stress in the domestic steel industry. CANACERO has reported that Mexican steel plants are operating at 55 percent capacity, the lowest in 25 years, with finished steel output down 8.1 percent and domestic steel consumption down 10.1 percent in 2025. Mexico runs a 2.5 million mt steel deficit with the US. Mexican negotiators have separately been pushing for full elimination of Section 232 tariffs as part of the ongoing USMCA review process.
Canadian industry has expressed skepticism about the economic practicality of the program. Industry leaders have noted that large-scale steel and aluminum facilities represent billions of dollars in existing infrastructure that cannot readily be relocated or replicated, and that committing to new US primary capacity would require major long-term capital outlays.
The US steel industry has supported the broader framework. The American Iron and Steel Institute and the Steel Manufacturers Association have each emphasized tighter rules of origin and restrictions on non-market inputs as central priorities for any renegotiation of the USMCA, arguing that stricter standards would direct procurement toward domestic producers.