La Silla Rota: Boost to Domestic Steel Will Generate a Multiplier Effect on the Mexican Economy

The Agreement for the Promotion of the Mexican Steel Industry, which will prioritize domestic steel in public procurement, is expected to leverage the country's idle installed capacity, create a multiplier effect on the economy, and redirect demand toward the internal market, acting as a local cushioning mechanism, according to experts.

"The main virtue is that it addresses a real problem: Mexico consumes nearly 28 million tons of steel per year but produces around 14 million. This means there is room to substitute imports without creating artificial demand. It is not necessarily about closing the market, but about utilizing idle installed capacity," stated Janneth Quiroz, Director of Economic, Exchange, and Stock Market Analysis at Grupo Financiero Monex.

Currently, according to the National Chamber of the Iron and Steel Industry (Canacero), the industry operates, on average, at 64% of its installed capacity. Canacero President Sergio de la Maza highlighted that this Agreement will protect approximately 90,000 direct jobs and consolidate $8 billion dollars in investments, contributing to more resilient and competitive value chains.

Context: The government of President Claudia Sheinbaum Pardo announced that public procurement and state-funded projects will prioritize steel produced in Mexico as part of a strategy to strengthen the national steel industry amid external pressure from U.S. tariffs and increased competition from Asian imports.

Cushioning and Value Chains

With U.S. tariffs on Mexican steel, the sector lost external competitiveness, and several plants have operated below capacity. In the face of this shock, redirecting part of the demand to the domestic market serves as a buffer. Canacero noted that Mexico faces U.S. tariffs that have caused a 53% drop in exports to that country and an import penetration equivalent to 42% of domestic demand.

Pedro Canabal, Partner at Baker Tilly Mexico, stated that import substitution will lead to lower overall steel dependency, incentivize national production, and aim to balance the trade deficit in the steel sector. "It strengthens value chains because steel is linked to a series of other industries such as construction, automotive, infrastructure, and energy," Canabal added.

Risks and Challenges

Quiroz noted that the agreement signals an active industrial policy. However, risks include potential cost increases in public works, reduced competition, and pressure on chains reliant on imported steel. If the priority for domestic steel becomes a rigid obligation without clear price and quality criteria, it could make public infrastructure more expensive.

Furthermore, Canabal pointed out that this is part of a broader strategy to limit Asian imports—mainly from China—strengthen North American content, and diversify the market toward Europe. Nevertheless, success will depend on the measure being more than symbolic, supported by actions against trade circumvention and efforts toward technological modernization.