Prime Minister Mark Carney has stated he will not publicly negotiate potential alignment with the United States on trade rules, as the U.S. and Mexico begin discussions regarding the United States-Mexico-Canada Agreement (USMCA). This comes as the three countries prepare for a mandatory review of the trade pact this year.
Diverging Trade Strategies
On Wednesday, U.S. Trade Representative Jamieson Greer and his Mexican counterpart, Marcelo Ebrard, agreed to explore “possible structural and strategic reforms” to the USMCA. These potential changes include stronger rules regarding the origin of goods, increased collaboration on critical minerals, and greater alignment of external trade policies. This move suggests a push for deeper integration within the North American market and a reduction of goods from outside the region – a strategy some analysts refer to as “Fortress North America.”
This approach potentially clashes with Mr. Carney’s stated goal of lessening Canada’s reliance on the U.S. and reducing “deepening integration.” In recent months, Canada and Mexico have pursued differing strategies regarding trade alignment with the U.S. Mr. Carney recently reached a deal with China to eliminate tariffs on some electric vehicles and encouraged Chinese investment in Canada’s auto industry. Simultaneously, Mexico has significantly increased tariffs – between 5 and 50 percent – on approximately 1,400 products from countries without existing free-trade agreements with Mexico.
U.S. Pressure and Potential Outcomes
Former U.S. President Donald Trump initially downplayed the Canada-China deal but later threatened a 100-percent tariff on Canadian goods should Ottawa pursue further trade agreements with China, warning against Canada becoming a conduit for Chinese products entering the U.S. When asked about aligning Canadian trade policy with Washington, Mr. Carney declined to comment, reiterating his intention to discuss the matter during the USMCA review process, not through public negotiation.
The renewal of the USMCA is critically important for Canada. The agreement currently shields over 90 percent of Canadian exports to the U.S. from a 35-percent “fentanyl” tariff imposed by Mr. Trump on goods not complying with free-trade rules. Mr. Trump has also suggested replacing the USMCA with bilateral agreements, raising uncertainty about the future of these tariff exemptions.
Geoffrey Gertz, a senior fellow at the Center for a New American Security, noted that the USMCA review will be heavily influenced by geopolitical factors, particularly concerning China. U.S. concerns center on Chinese investment in Mexico and broader issues of economic security. U.S. Trade Representative Jamieson Greer has indicated a desire to strengthen North American content rules and enhance collaboration on tariffs, export controls, and investment screening.
What’s Next?
It is possible that the U.S. will push for more closely coordinated trade policies from Canada and Mexico during the USMCA review. Analysts expect demands for improved access to Canadian dairy markets and adjustments to online streaming rules. A scenario could unfold where Canada faces pressure to curtail its independent trade initiatives with countries like China. However, a complete alignment with U.S. trade policy is not guaranteed, and Canada may seek to maintain some degree of autonomy. Mexico’s recent tariff increases suggest a willingness to address U.S. concerns, but the extent to which they will accommodate further demands remains to be seen.
Frequently Asked Questions
What is the USMCA?
The USMCA, or United States-Mexico-Canada Agreement, is a free trade agreement that governs trade between the three countries. It provides a framework for over $1 trillion in annual Canada-U.S. trade.
What is the U.S. seeking in the USMCA review?
The U.S. is seeking “possible structural and strategic reforms” to the agreement, including stronger rules of origin for goods, enhanced collaboration on critical minerals, and increased alignment of external trade policies.
What has Canada done that differs from the U.S. approach?
Mr. Carney recently reached a deal with China to drop tariffs on some electric vehicles and invited Chinese companies to invest in Canada’s auto industry, a move that diverges from the U.S. approach.
How will these evolving trade dynamics impact the future of economic relations between Canada, the U.S., and Mexico?
