Articles in Category: Non-ferrous Metals

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With the United States-Mexico-Canada Agreement (USMCA) potentially being signed by the three parties this week during the G20 Summit in Buenos Aires — which will take place over two days, Nov. 30-Dec. 1 — the trade deal and tariffs are on the minds of industry CEOs, from manufacturing to agriculture.

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Several industry executives gathered in Washington, D.C. Tuesday for a panel discussion on the impact of the U.S.’s Section 232 steel and aluminum tariffs and their relationship to the USMCA.

Speaking at the event were:

  • Michael Dykes, CEO, International Dairy Foods Association
  • Jennifer Thomas, vice president, Federal Government Affairs, Alliance of Automobile Manufacturers
  • Buddy Stemple, CEO of Constellium, Aluminum Association member
  • Brandon Skall, CEO and co-founder, D.C. Brau, Brewers Association member
  • Catherine Boland, vice president, legislative affairs, Motor Equipment Manufacturers Association

Heidi Brock, president and CEO of the Aluminum Association, also offered opening remarks during the event, reiterating the Association’s public stance that Canada and Mexico should be granted quota-free tariff exemptions. (Brock also spoke on the subject during a U.S. International Trade Commission hearing earlier this month.)

The focus should be on China, not Canada and Mexico, Brock said, according to a transcript of her remarks.

“Across-the-board tariffs are not addressing the problem of China’s illegally subsidized aluminum overcapacity,” she said. “We have seen very little evidence that the Section 232 tariffs are impacting behavior in China, which continues to illegally subsidize its aluminum industry. China’s aluminum capacity has grown by 73 percent over the past five years, and an additional eight percent just this year, despite the Trump administration’s tariff regime. In fact, there is some evidence that the tariffs may actually be helping Chinese aluminum producers to enter new markets by increasing China’s price advantage over aluminum produced in North America.”

According to a Reuters report earlier this month, Ildefonso Guajardo, Mexico’s economy minister, said he expects the U.S., Mexico and Canada to sign the USMCA during the G20 Summit.

Buddy Stemple, CEO of Constellium Rolled Products, a downstream aluminum manufacturer based in Ravenswood, West Virginia (primarily serving the aerospace, automotive, packaging and defense industries), applauded the Trump administration for its trade actions on Chinese common alloy aluminum, but, like Brock, indicated the Section 232 tariff on aluminum casts too wide of a net.

“And the Section 232 tariffs, which imposes a 10 percent tariff on virtually all aluminum and aluminum product entering the United States – not just from China but from all countries – is the wrong solution to a real problem,” he said, according to a transcript of remarks. “While well-intentioned, the tariffs are making the U.S. aluminum industry, including Ravenswood, less competitive on the world stage.”

The U.S. aluminum industry does not make enough to support domestic demand, he argued, an argument we echoed yesterday in our discussion of the tariff waiver process:

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

He also called for a USMCA without steel and aluminum tariffs for Canada and Mexico. In addition, referred to the “unintended consequences” of the administration’s tariff exemption process.

“Requests for massive volumes of common alloy aluminum sheet have been approved, even though some of these imports are coming from China,” he said. “In particular, the approval of exclusion requests by Ta Chen International now allow for import of more than 1 billion pounds of Chinese common alloy sheet – a substantial share of the U.S. market for common alloy products.”

Continuing in the same vein, Jennifer Thomas, of the Alliance of Automobile Manufacturers, referred to the statutory basis for the Section 232 tariffs.

“At the end of the day, Canada and Mexico are not national security threats,” Thomas said.

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All eyes will be on Buenos Aires tomorrow and Saturday, when G20 leaders will convene. Global markets will be looking to the summit for developments with respect to USMCA (i.e., its potential signing and whether the steel and aluminum tariffs will be removed for Canada and Mexico) and whether President Donald Trump and Chinese President Xi Jinping can make any progress with respect to the ongoing U.S.-China trade war.

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This morning in metals news, Chinese iron ore has hit a 4 1/2-month low, the zinc price fell for a fourth straight session and tariff waiver requests have been granted for a great number of metals from China.

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Chinese Iron Ore Continues Fall

Prices of Chinese iron ore fell to a 4 1/2 month low, according to the Hellenic Shipping News.

Trade tensions have weighed on the Chinese economy this year, with steel prices taking a tumble, even while Chinese steel production has not let up (in fact, China’s crude steel production jumped 9.7% year over year in October, according to a recent World Steel Association report).

U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to attend this week’s G20 Summit in Buenos Aires, where they are expected to talk trade. The tariff rate on the U.S.’s $200 billion tariff package is set to jump from 10% to 25% at the start of the new year, barring an agreement that would preclude the hike.

Zinc Price Falls Again

The price of London zinc dropped for a fourth straight sessions Tuesday, according to a Reuters report.

LME zinc dropped 0.3% Tuesday, according to the report, down to $2,428.50 per ton.

Tariff Waivers and Chinese Metals

According to a report by The New York Times that cites a congressional analysis, the Trump administration has granted more than 3,000 tariff waivers that could exempt Chinese-made metals.

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In fact, according to the report, the U.S. has granted waivers with respect to a higher share of requests from China than from Japan and Canada.

MetalMiner’s Take: Clearly, the process for obtaining tariff exemptions remains opaque and, in some cases, irrational.

We have seen specific instances, such as with grain-oriented electrical steel (GOES) requests, that disputes often occur within some very gray areas that require a deep subject matter expert to vet and ascertain.

The simple “if nobody opposed the exclusion request” rule of thumb is faulty, particularly in the case of Mandel Metals, where the amount of the request far exceeds the total volumes necessary to run Mandel’s operations. Perhaps the “return of market fundamentals” will help guide the process, as well.

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

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This morning in metals news, U.S. senators are asking for an independent review of the Trump administration’s Section 232 tariff waiver process, LME copper is down for the third straight day and Chinese steel mills are preparing for difficult times ahead.

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Another Look

The review of Section 232 tariff exemption requests from domestic companies has been going on since June, and the process has come in for much criticism.

According to a Bloomberg report, a bipartisan group of senators have asked for an independent review of the tariff waiver process, noting that as of last month only about one-third of the approximately 50,000 requests had been addressed.

LME Copper Down Again

London copper has been on the slide of late, dropping Tuesday for the third straight day, Reuters reported.

According to the report, the drop comes after comments by President Donald Trump to the Wall Street Journal related to China. The president said it was unlikely the U.S. would agree to China’s request to delay the scheduled Jan. 1 tariff rate increase — up to 25% from 10% — on the previously announced $200 billion tariff package.

Chinese Steel Mills Hit a Rough Patch

According to another Reuters report, Chinese steel producers posted losses for the first time in three years.

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Per the report, as a result of falling prices, some mills are looking to utilize more low-grade iron ore in the steelmaking process in an effort to tamp down costs.

MetalMiner’s Take: In markets in which profit margins erode, simple supply and demand fundamentals ought to take hold — producers ought to limit supply to boost profits.

In the U.S., producers did exactly that for years and years, operating at below 80% utilization rates (U.S. producers have only recently hit those production rates as a result of the tariffs, the bullish commodity market and a booming economy).

When Chinese producers start to run losses, those producers ought to take a lesson from their American peers — and limit production to shore up profits.

But Chinese steel producers won’t do that. In fact, they will do the opposite — continue to produce, even at a loss, to keep people employed.

And once again, that excess steel will flow to the rest of the world.

Too much steel always has and always will put a lid on prices. Therefore, steel-buying organizations will want to watch very closely how much steel China produces, as well as the price per ton, as Chinese steel production and steel prices lead the U.S. market.

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This morning in metals news, Chinese steel prices are dropping, Rio Tinto is leading the copper charge in Australia’s Great Sandy Desert and Asian aluminum prices are coming down.

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Chinese Steel Market

Chinese steel prices are entering a bear market, according to a Reuters report.

Steel prices hit a five-month low Monday, Reuters reported.

MetalMiner’s Take: U.S. steel-buying organizations ought to watch China’s demand very carefully now, as price trends in China lead price trends in the U.S.

Lower oil prices combined with sluggish Chinese demand does not bode well for the industrial metal’s long-term bull market. The dramatic shift in oil prices and lower metal pricing coming out of China represent two significant variables tracked by MetalMiner with respect to calling a bull or bear market.

December forecast subscribers will be the first to learn whether or not MetalMiner will change its long-term outlook. A shift in outlook would also signify a switch in sourcing strategies.

Copper in the Desert

Rio Tinto is leading the way when it comes to copper mining in the remote Great Sandy Desert of Western Australia, Reuters reported.

According to the report, the miner has put in 30 exploration licenses for the area, leading to speculation that Rio has possibly made a significant discovery in the area.

Aluminum Prices Dropping

Asian aluminum prices are on the downswing, including in Japan, according to the Nikkei Asian Review.

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Aluminum ingot prices in Japan in October were approximately 10% lower than in the U.S., according to the report.

MetalMiner’s Take: It is arguable whether the fall in Asian aluminum prices is a result of U.S. tariffs or a slowing of metal demand in Asia.

Prices in Europe have been supported by high prices European mills are achieving in the U.S. market, so the same should have been true for Asian suppliers in general.

Only Chinese mills are facing exceptional tariff barriers; mills in South Korea, Taiwan and Japan do not face the same obstacles. Chinese production is sliding and primary aluminum output has been falling this quarter, which some analysts are chalking up to an early onset of environmental controls for the winter heating season. If the market were being artificially constrained, domestic Chinese prices would rise as a result in the tighter market — but that is not the case.

Domestic prices have remained broadly stable, suggesting the market is slowing due to lower domestic and regional demand.

This morning in metals news, zinc is undergoing some tight times, according to Reuters’ Andy Home, and oil price volatility is still top of mind as we go into the Thanksgiving holiday in the U.S.

Oil Prices Tumbled, Look to Stay Volatile

As I filled my tank earlier this morning before heading to my mother-in-law’s for Thanksgiving, I noticed the effects of Tuesday’s 6% percent drop in oil prices at the pump.

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Among heavy trading volumes, the recent drop in oil prices — as well as major losses on the Dow — have some investors and market watchers worried.

Goldman Sachs put out a note today saying the bank expects oil markets to “remain highly volatile in the coming weeks,” according to Reuters.

As OPEC pushes its producers to cut output to the tune of 1 million to 1.4 million bpd, the investment bank is quoted as saying “the renewed price collapse reflected ‘concerns over excess supply in 2019 … (and) a broader cross-commodity and cross-asset sell-off as growth concerns continue to mount.”

Quite a Stink Over Zinc

Reuters’ Andy Home is calling this moment “zinc’s period of peak tightness,” due to skimpier metal availability from mine capacity crunches and closures and the greater influence of investor dollars driving the zinc price over the past decade.

Indeed, the ILZSG is confirming the zinc market deficit, as reported by my colleague and MetalMiner Editor Fouad Egbaria — check out the full article, published today.

“The single most important zinc market trend is that of falling refined metal production in China, itself a product of months of deteriorating mine concentrates availability,” Home writes.

“None of which means that the zinc price is going to go on the sort of super nova rally seen last decade,” he continued, “at least not unless the [investment] fund herd drastically rethinks its views on both zinc and the bigger trade picture.”

MetalMiner’s Take: According to our most recent monthly outlook report, the key drivers of the zinc prices to keep an eye on include the overall zinc deficit this year and into 2019, rising zinc premiums (which have reached the highest level in six years), and smelting capacity constraints.

For more efficient zinc buying strategies, take a free trial of MetalMiner’s Monthly Outlook!

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A recent report by the International Lead and Zinc Study Group (ILZSG) details lead and zinc supply and demand levels for the first nine months of the year.

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Lead Demand Exceeds Supply

According to the report, lead demand exceeded supply by 110,000 tons for the first nine months of the year, while reported stock levels fell by 49,000 tons.

Lead mine production dropped 0.9%, “primarily due to lower output in Australia, Kazakhstan, Peru, South Africa and the United States that more than offset increases in Europe, India and Morocco,” according to the report.

Production and usage were up on a month-to-month basis. Mine production hit 400,800 tons in September, up from 380,100 tons in August. Lead usage hits 1,043,700 tons in September, up from 987,900 tons in August.

Meanwhile, global lead usage fell 0.6%, primarily as a result of reductions in South Korea, the U.S., Japan and Mexico. European usage increased 0.3%, paced by upticks in Austria, Italy and Poland.

Zinc Market in Deficit

The global zinc market, on the other hand, was in deficit by 305,000 tons for the January-September period, while total reported inventories dropped by 46,000 tons over the same nine-month period.

“World zinc mine production rose by 1.2%, mainly influenced by increases in Australia, Peru and the United States,” the report states. “In Europe, a 3.2% rise was primarily a consequence of increases in Finland, Greece, Ireland and Macedonia, that more than offset reductions in Poland and Sweden. In Canada, China, India and Mexico, output was lower compared to the first nine months of 2017.”

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Meanwhile, global zinc usage fell 0.3%, primarily due to decreases in China, South Africa and Taiwan. European usage increased 1.3%, led by upticks in Poland, France, Belgium and the Russian Federation.

On a month-to-month basis, mine production hit 1,084,500 tons in September, up from 1,064,200 tons in August. Zinc usage hit 1,155,500 tons, up from 1,141,600 tons in August.

According to International Aluminum Institute (IAI) data released yesterday, global aluminum production jumped 4% year over year in October.

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Global aluminum production hit 5.4 million metric tons in October, up from 5.2 million metric tons in October 2017. The October production total also marked an increase from the previous month, when production hit 5.3 million metric tons.

Estimated Chinese production constituted 57% of global production, with 3.05 million metric tons in October (up 1.3% from 3.01 million metric tons in September).

On a year-over-year basis, October Chinese production jumped 7.0% from October 2017’s 2.85 million metric tons.

Chinese aluminum production. Source: International Aluminum Institute

For the January-October period, Chinese production held just about flat, with 30.231 million tons in the 10-month period in 2017 and 30.227 million tons for the same period in 2018.

Reuters reported earlier this month that lower aluminum prices have prompted a decline in Chinese production in recent months, even before winter cuts take a bite into production total. According to the report, Shanghai aluminum prices fell 2.1% in October.

The most-traded aluminum contract on the SHFE opened at 13,730 yuan per ton yesterday ($1,977 per ton).

Asian production not including China hit 377,000 tons, up from 364,000 tons in September and 352,000 tons in October 2017.

Meanwhile, North American aluminum production hit a 2018 monthly high in October at 323,000 metric tons, up 4.2% from September’s 310,000 metric tons. On a year-over-year basis, the October total marked a 3.6% decrease from October 2017 production.

North American aluminum production. Source: International Aluminum Institute

North American production through the first 10 months of the year hit 3.127 million tons, down from the 3.291 million tons during the same period in 2017.

Production in East and Central Europe hit 343,000 tons in October, up from 332,000 tons the previous month, and up slightly from 342,000 tons in October 2017.

Production in Western Europe hit 321,000 tons in October, up 2.9% from September’s 312,000 tons. On a year-over-year basis, production rose 0.3% from October 2017’s 320,000 tons.

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This morning in metals news, the Mexican ambassador to the U.S. told news agency McClatchy he expects the U.S. to lift its steel and aluminum tariffs, world aluminum production jumped in October, and Norilsk Nickel says it is willing to work with London-listed Kaz Minerals on a copper project in Russia.

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Goodbye, Tariffs?

In an interview with McClatchy, the Mexican ambassador to the U.S., Geronimo Gutierrez, said Mexico expects the U.S. will lift its tariffs on steel and aluminum vis-a-vis Mexico after the signing of the United States-Mexico-Canada Agreement (USMCA).

The USMCA is slated to supersede the North American Free Trade Agreement (NAFTA). The U.S. first reached a deal with Mexico, with Canada coming on afterward. However, despite the deal reached at the end of September, the U.S. tariffs on steel and aluminum remained in effect with respect to imports from Canada and Mexico, which has remained a primary sticking point for the two countries in the weeks following the USMCA announcement.

The two countries initially won temporary exemptions from the Section 232 tariffs this spring, but the exemptions were allowed to expire as of June 1.

MetalMiner’s Take: One of the most frequently asked questions from MetalMiner readers involves how long the Trump administration would maintain the Section 232 tariffs.

Throughout much of the year, MetalMiner has said the tariffs will remain in place for the mid-term (6-9 months). USMCA will likely result in some modifications on 232, either through exemptions or quotas. Despite a potential 232 adjustment for USMCA, MetalMiner believes the tariffs will remain intact.

Aluminum Production Rises

Global aluminum production in October jumped 4% year over year, according to International Aluminum Institute data released today.

October production reached 5.4 million net tons, up from 5.2 million net tons in October 2017.

Norilsk Nickel Indicates it Could Work With Kaz Minerals

As reported by the Financial Times, palladium and nickel giant Norilsk Nickel has said it is willing to partner with Kaz Minerals on the latter’s Baimskaya copper project in Russia’s Chukotka region.

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The London-listed Kaz Minerals purchased the Baimskaya project in August for $900 million in cash and shares.

According to a Kaz release at the time, the Baimskaya project is “one of the world’s most significant undeveloped copper assets with the potential to become a large scale, low cost, open pit copper mine.”

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This morning in metals news, Tokyo Steel plans to raise plate prices, Rio Tinto says new aluminum capacity is needed outside of China and copper prices tick upward.

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Plate Prices Rise

Tokyo Steel plans to raise heavy plate prices by 2.5% in December, according to a Reuters report. The steelmaker had not raised heavy plate prices since January, the report noted.

MetalMiner’s Take: Plate prices have always had their own price dynamics separate from the other forms of flat rolled steel (such as HRC and CRC).

Plate prices in the U.S. have remained fairly well-supported compared to the other forms of steel, so it should come as no surprise that in markets with strong construction demand, like Japan, mills would announce price increases.

Interestingly, Chinese plate prices have started to slip, but those dynamics could change based on environmental curbs, whether the Japanese plate price increases stick and Chinese demand.

U.S. metal-buying organizations will want to pay close attention to these price dynamics in Japan and China.

Aluminum Capacity

Rio Tinto Group says the world needs new aluminum capacity outside of China in the coming years, Bloomberg reported.

Copper Price Rises

Prices of LME and SHFE copper increased Monday, Reuters reported, on the heels of positive sentiment stemming from comments made by President Donald Trump regarding tariffs on China.

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During a press briefing Monday, Trump said the U.S. might not need to impose further tariffs on China, the world’s top copper consumer.

Industry groups testified before the U.S. International Trade Commission (USITC) late last week on the United States-Mexico-Canada Agreement (USMCA) and its potential impact on the U.S. economy and industry sectors.

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The Aluminum Association was one of the groups to comment, particularly focusing on the Section 232 steel and aluminum tariffs. Despite the three countries reaching a deal on USMCA — which is set to serve as the successor to the North American Free Trade Agreement (NAFTA) if ultimately finalized — the U.S. metals tariffs remain in effect for Canada and Mexico.

During her testimony, Aluminum Association President and CEO Heidi Brock renewed the industry group’s call for quota-free tariff exemptions for Canada and Mexico.

“Limiting access for U.S. aluminum producers to reach their suppliers and customers – and in some cases, their own subsidiaries and facilities – in Canada and Mexico, as we see with the Section 232 tariffs today, will hamper continued growth and investment for our industry here at home,” Brock said. “This is why we continue to call for quota-free exemptions from these tariffs for our USMCA partners. The U.S. aluminum industry faces an acute and persistent issue of illegally subsidized Chinese aluminum overcapacity in the market, but tariff or quota actions against countries like Canada and Mexico that operate as market economies do not address the China challenge and instead harm the overall competitiveness of the region.”

Brock concluded the USMCA cannot work without removal of the tariffs on Canada and Mexico.

“From the beginning, we have supported a modernized North American trade agreement, and USMCA achieves that in important ways,” she said. “However, we urge the president to resolve the Section 232 tariffs on aluminum imports for our neighbors to ensure free movement of aluminum and aluminum products within North America. The new agreement simply cannot work as intended for the aluminum industry and our customers with those tariffs – or quotas to limit access to supply – in place. Full, quota-free exemptions for Canada and Mexico from aluminum tariffs as part of this agreement will benefit the U.S. aluminum industry and the hundreds of thousands of American workers who depend on its success.”

Almost two weeks after the USMCA was announced, the USITC announced Oct. 12 that it would investigate the potential impacts of the deal. The investigation came at the request of U.S. Trade Representative Robert Lighthizer.

Kevin Dempsey, the senior vice president for public policy and general counsel for the American Iron and Steel Institute (AISI), also testified at the hearing.

Dempsey said the U.S. steel industry views NAFTA as a “successful agreement,” but one that should be modernized and strengthened. He went on to list provisions of USMCA that he said would benefit the steel industry, including a strengthened rules of origin benchmark and provisions promoting “increased cooperation and information sharing between the three North American governments to address circumvention and evasion of trade remedy orders.”

As we noted Friday, it remains to be seen what impact, if any, the new Democrat-majority House of Representatives will have on implementation of the USMCA.

Some Democrats have expressed concerns about the deal, including New Jersey Rep. Bill Pascrell, the leading Democrat on the House Ways and Means Subcommittee on Trade.

“As claims start to be made about the miracles that the new NAFTA will bring, we are relying on you, this commission, the International Trade Commission, to tell it like it really is,” Pascrell said in his opening remarks during the USITC hearing last Thursday.

Pascrell said he is reviewing the text of the USMCA and plans to use the USITC’s analysis, among other analyses, to inform his views on the agreement.

“There are certainly some improvements in the USMCA over the previous NAFTA, but the jury is still out as to whether this deal meets my standard for a better deal for American workers,” Pascrell said. “The Commission’s report on the potential economic impact of the USMCA is a critical component in assessing the merits or flaws of the new deal. Any new deal will not be a success unless it eliminates the incentives for outsourcing in the original NAFTA and boosts jobs and wages in a meaningful way in the United States.

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“For these reasons, we need a comprehensive and meaningful ITC report to determine whether all of the Administration’s rhetoric around transforming and rebalancing U.S. trade policy will actually carry the day.”

The full text of the USMCA is available on the Office of the U.S. Trade Representative’s website.