Why Cleveland-Cliffs Stock Just Dropped

Cleveland-Cliffs (NYSE: CLF) stock fell 8.5% through 2:10 p.m. ET Tuesday after Reuters reported on new trade negotiations between the U.S. and Mexico that could significantly roll back 50% tariffs on steel imports -- which had themselves been announced only last week.

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50% -- up to a point

The negotiations would not affect all steel imports -- only those from Mexico, and only to an extent. While details haven't yet been made public, Reuters reports the idea will be to permit a certain quota or specified volume of steel to come into the U.S. from Mexico duty free, or at a reduced tariffs rate. Imports in excess of that quota or volume limit would still pay the 50% tariff.

And of course, the 50% tariff will remain in place for imported steel from other countries.

Is Cleveland-Cliffs stock a sell?

Just the rumor of the creation of this single Mexican loophole, though, seems to have shaken investors' confidence that Cleveland-Cliffs stock is a sure thing -- and no wonder. After all, if tariffs can be renegotiated lower with one country, they can be renegotiated lower with other countries as well -- or even lowered back down to previous levels with entire regions (such as the E.U. or North America), or with the world as a whole.

That would be bad news for Cleveland-Cliffs investors, who've been counting on tariff policy to help turn their company profitable again, after losing $754 million a year. At the same time, the company has to worry about domestic competition from a U.S. Steel that will soon be backed by money from Japan's Nippon Steel.

It's a good reminder for investors: If you're counting on a change in government policy to save your stock, you may be setting yourself up for a fall.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.