Mexico Presses US for Exemption From Forced Labor Tariffs

Mexico, Peru, Guatemala, and Ecuador asked the USTR at July 7 hearings to exempt them from proposed Section 301 tariffs of 10% to 12.5% tied to forced-labor enforcement, duties widely viewed as replacing the temporary 10% surcharge expiring July 24, 2026. USMCA-compliant goods, about 85% of Mexico's US-bound exports, would be exempt, but the measure adds pressure on exporters already paying US$22.988 billion in annual US tariffs amid the ongoing USMCA review. The final determination will define tariff exposure for Mexican manufacturers, steelmakers, and integrated North American supply chains.

Four Latin American governments took their case directly to US trade regulators, asking to be carved out of a proposed duty package of 10% to 12.5% that Washington has linked to weak policing of forced labor in global supply chains. Delegations from Mexico, Peru, Guatemala, and Ecuador told the Office of the US Trade Representative (USTR) that their countries already maintain the statutes and enforcement machinery needed to keep goods made under coercion out of commerce.

The interventions came during a public hearing on levies the agency has floated for 59 economies plus the European Union. One after another, the officials disputed the premise underpinning the measure, that their governments enforce forced-labor bans only half-heartedly, and defended their domestic legal records.

"Mexico has made the fight against forced labor a serious priority," said Ernesto Acevedo Fernández, Undersecretary, Ministry of Economy, who warned that layering an extra 10% duty onto Mexican shipments would penalize thousands of companies operating within the law.

"The tariffs proposed by the USTR against Mexico are unjustified, since there is no evidence of imports made with forced labor entering the United States through Mexico," Acevedo added. 

Tariff Authority in Transition

The three days of testimony scheduled this week are a procedural requirement before the administration can act under Section 301 of the Trade Act of 1974, the statute reserved for unfair foreign trade practices, in this instance the alleged failure to block imports produced with forced labor. In the USTR's framing, coerced labor abroad tilts the playing field against American workers.

Trade observers, however, see a different motive: constructing a durable legal foundation for duties the courts dismantled. The Supreme Court struck down the White House's sweeping emergency-powers tariffs earlier this year, prompting a stopgap 10% surcharge in February that runs out on July 24. The forced-labor duties would slot in as that deadline hits.

The strategy is drawing fire at home. Twenty-two Democratic state attorneys general lodged formal objections on July 6, characterizing the proposal as broad tariffs in disguise and an overreach of Section 301 powers. Their letter to US Trade Representative Jamieson Greer left the door open to litigation.

Peru mounted its own defense through José Luis Castillo Mezarina, the country's Director of Trade Negotiations, who requested a full exemption "since in the Peruvian case no concrete burden on US commerce has been established, nor has the evidentiary standard required by Section 301 been met, and the bilateral trade relationship does not justify a measure of this nature."

Brazil, meanwhile, faces a separate and steeper threat: a 25% duty under a distinct unfair-practices probe. That parallel hearing closed after right-wing Senator Flávio Bolsonaro, son of former President Jair Bolsonaro and a contender in October's presidential race, delivered testimony.

Pig Iron Emerges as a Flashpoint

US steelmakers turned the forced-labor hearing into a lobbying venue of their own, seeking to shield imported pig iron, the raw material that feeds electric arc furnaces. Integrated producers US Steel and Cleveland-Cliffs, which run blast furnaces, do not sell the input to competitors, and the material escaped the 50% Section 232 steel tariffs on national security grounds. The forced-labor duty would capture it, inflating costs for Nucor, Steel Dynamics, and similar mills.

Brandon Farris, Executive Vice President, Steel Manufacturers Association, calculated that stacking the proposed Brazil-specific duties on top of the forced-labor rate could push tariffs on Brazilian pig iron, a leading source, to 37.5%, handicapping the bulk of US steel output. The USTR will review the record before finalizing both the duties and any carve-outs.

Reading the Exposure for Mexico

The hearing closes a comment cycle that began when the USTR published the proposal on June 2, 2026, the product of an investigation opened in March, shortly after the Supreme Court ruling. Mexican authorities have since quantified the shelter that USMCA compliance provides: around 85% of the country's US-bound export volume qualifies for the treaty exemption, while automobiles, steel, and aluminum sit outside the probe because Section 232 orders already tax them at rates reaching 50%.

That exclusion is cold comfort, in the view of Christian de la Huerta Ávila, Senior Economist, Casa de Bolsa Finamex, who has pointed out that Section 232 goods escape the new duty only because they are already heavily taxed, and that Mexico has now been named in three Section 301 investigations in under three months, a tool Washington historically aimed at China.

The numbers underscore the stakes. Over the 12 months through April 2026, Mexico handed over US$22.988 billion in duties at US customs, steel shipments northward contracted 36.6% in 2025, and the bilateral surplus shrank to US$47 billion in 1Q26 from close to US$63 billion a year before. With the USMCA joint review running in parallel, the determination due around July 24 ranks among the defining trade decisions for Mexican exporters in 2026.