On Monday evening, President-Elect Trump confirmed his intention to impose 25% tariffs on Canadian and Mexican goods via an Executive Order on day one of his new administration, along with additional 10% tariffs imposed on Chinese goods, above any additional tariffs. Mr. Trump is tying the threat of immediate tariffs to Canada and Mexico with action on curbing irregular migration and drug smuggling into the US.
However, according to senior Canadian sources, the inclusion of Canada in President-Elect Trump’s pronouncement Monday evening occurred at the last minute, suggesting that the incoming administration may be more focused on the dynamics of its Southern rather than Northern border. It thus comes as little surprise that Canada has been trying to distance itself from Mexico since the election results came in.
As such, this most recent statement must be examined in light of a potential rupture of the united Mexican-Canadian front in trade negotiations with its much more powerful trade partner, the United States of America.
Alex Steinhouse of the Government Relations and Political Law (GR&PL) group provides additional context below.
Just like in his previous Presidential campaigns, Mexico had been a prime target for President-Elect Trump this time around. During this past Presidential campaign, Mr. Trump vowed to immediately place 25% tariffs on all goods from Mexico, unless Mexico stopped the flow of migrants, fentanyl, and artificially subsidized Chinese goods. Failure to satisfy Mr. Trump could eventually lead to tariffs as high as 100%.
Moreover, with respect to the automotive sector, Mr. Trump has pledged tariffs of at least 200% or more on all vehicles imported from Mexico, and has suggested levies on Chinese auto companies operating in Mexico as high as 1,000%. Mr. Trump expressed consternation about Chinese automakers building manufacturing plants in Mexico, which as of yet is not happening, but China’s top electric vehicle maker BYD does have plans for a Mexican facility. It is worth bearing in mind that while Chinese investment in Mexico is growing rapidly, it is still comparatively small (for instance, Belgium has a larger investment presence there).
Since NAFTA in 1994, Canada and Mexico have increasingly become joined at the hip through our trilateral trade agreements with the United States.
Significant Trading Partners
In fact, during the CUSMA negotiation, according to insiders, including a former senior Mexican official and trade negotiator, Mexico had defended Canada’s continued inclusion in the trade agreement in the face of American threats to exclude us, and was instrumental in securing Canadian demands, including the dispute-settlement agreement as well as a longer term for the agreement than the Trump administration had wanted. It is clear that the Government of Canada saw value in presenting a common front in those negotiations, rather than acting alone, in negotiations with our respectively much larger and more powerful trade partner.
Mexico is now Canada's third largest single-country merchandise trading partner (after the US and China), while Canada is Mexico's fourth-largest merchandise trading partner. In terms of our combined weight in the American market, Canada and Mexico account for just over a third of US trade, which is significant, but still pales in comparison to the American weight in Canadian and Mexican economies –the US accounts for 77% of Canadian exports; for Mexico it is over 80%.
During the first Trump administration, Mexico benefitted from the tariffs applied to China, overtaking China in becoming in 2021 the US’ biggest trade partner.
However, in the weeks since the election, Canada, in various ways, has signalled a willingness to depart from this status quo, in order to spare Canada from a larger trade war with our neighbours to the South.
Canadian Premiers Weigh In
With that said, Canada is mulling a new approach for the new incoming Trump administration. Ontario Premier Doug Ford was the first Canadian politician to suggest that Canada should let Mexico loose from CUSMA, mirroring Mr. Trump’s language that Mexico is not aligned with Canada and the US in terms of stemming the flow of Chinese artificially inexpensive imported parts into the North American supply chain, and especially when it comes to electric vehicles.
Prior to the American election, Premier Ford was one of the Canadian leaders who had convinced Prime Minister Justin Trudeau to match President Joe Biden’s 100% tariff on artificially inexpensive Chinese electric vehicles, which are subsidized by Beijing, in order to protect Ontario’s burgeoning domestic EV industry.
In remarks shortly after Mr. Trump’s election, Premier Ford noted that Ontario does two-way trade with the US worth CAD $493 billion annually compared with only CAD $40 billion of trade with Mexico. As Chair of the Council of Federation of Premiers, Ford has since said that he has achieved a “clear consensus [amongst the Premiers] on the need for a bilateral trade deal with the United States and a separate trade deal with Mexico”.
According to Premier Ford, “What our problem is — all the premiers — we know Mexico is bringing in cheap Chinese parts, slapping ‘made in Mexico’ stickers on, shipping (them) up through the US and Canada, causing American jobs to be lost and Canadian jobs.”
Premier Ford said the premiers will meet in person in Toronto on December 15-16 to further discuss the issue. Alberta Premier Danielle Smith has also come out saying she aligns “1000%” with Premier Ford on ousting Mexico from the trilateral trade deal. Premier Ford has also prompted a First Ministers meeting to be held this evening to discuss a Team Canada approach for engaging with the incoming Trump administration.
Federal Response
Premier Ford, Deputy Prime Minister Chrystia Freeland has left open the possibility of abandoning Mexico in trade negotiations, by acknowledging the “legitimate” concerns about Chinese investment in Mexico, and by saying that Canada is “aligned” with the US with respect to tariffs on Chinese electric vehicles as well as on steel and aluminum, while Mexico is not.
Meanwhile, after meeting Mexican President Claudia Sheinbaum on the margins of last week’s G20 meeting, Prime Minister Justin Trudeau said that he raised the “real and genuine concerns about Chinese investment into Mexico” directly with his counterpart. Prime Minister Trudeau says he would prefer Mexico remain a North American free trade partner but “we may have to look at other options” if Mexico does not address concerns about Chinese manufacturers using Mexico to enter our market. The Prime Minister would not explicitly lay out the options under consideration.
Canadian Business and Labour Leaders
Canadian business and labour leaders have cautioned that tossing Mexico out of CUSMA before the June 2026 review even begins is premature. The Canadian Chamber of Commerce is of the view “that we should be working with all three countries and that we’re better together. CUSMA has been good for Canadians. It’s been good for Canadian businesses.”
Meanwhile, Automotive Parts Manufacturers’ Association president Flavio Volpe, who was part of the Team Canada that had negotiated CUSMA, says that he does not see “the strategic value in telling them they’re out before we know what the nature of the threat is.” He went on to say that “we need to make sure the message is clear to Mexico, but we also have to be good partners and help them get there. It’s important to American and Canadian assemblers to maintain Mexico as a supply corridor,” Volpe said. “There’s no hope of competing with China if we concede Mexico.”
Despite the rhetoric, CUSMA does not contain a clause enabling Canada or the US to boot Mexico out of the agreement before 2036, making this an unlikely ultimate short term outcome. Article 34.6 provides an option for a country to withdraw from the pact with six months’ notice. Meanwhile, Article 34.7 provides, as Gabriela Siller explains, that if a country expresses dissatisfaction with another country’s actions during the 2026 joint review, that it “can ask for a review each [subsequent] year to work out a solution, and keep doing that for a decade while the agreement remains in force.” Realistically, and on paper anyway, Mexico would remain part of CUSMA until 2036 at the earliest.
Whatever may ultimately occur on this front, Mexico is hearing the message loud and clear and is responding accordingly. President Sheinbaum has recently said her government “has a plan with the aim of substituting these imports that come from China, and producing the majority of them in Mexico, either with Mexican companies or primarily North American companies.” This includes manufacturing microchips in Mexico. Moreover, while the Mexican government is eliminating various independent oversight and regulatory agencies, to the great concern of Canadian and American business leaders, it claims to be seeking to do so while carefully attempting to meet the minimum standards required by CUSMA.
In a letter released on November 25, President Sheinbaum further set out Mexico’s plans with respect to Chinese parts and electric vehicles, her strategy to further crack down on fentanyl drug smuggling, and also noted that Mexican efforts already underway have considerably reduced apprehensions of migrants at the Mexico-US border. However, the President also had a stern message to Mr. Trump – Mexico will consider pursuing retaliatory tariffs on US imports should President-Elect Trump make good on his tariff threat, which will hit particularly hard US carmakers with Mexican plants, including General Motors and Ford. The President said she will seek a call with Mr. Trump and send a letter to Prime Minister Trudeau at the earliest opportunity.
North America is a trading bloc that draws envy across the world. In fact, study after study have “concluded that the North American platform has everything necessary to be the leading economic bloc – energy and resources, talent, technology and innovation in life sciences and information technology plus a market of almost half a billion people.” With all the drama anticipated ahead, we must play our part in reminding decision-makers that cooler heads must prevail, and that multilateralism is indeed a win for all North Americans.
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