The USMCA trade agreement, now in its fifth year of existence and up for renegotiation in 2026, is already looking frail.
Yesterday (Nov 25), US President-Elect Donald Trump announced that on his first day back in office he would use executive powers to impose a 25% tariff on all products entering the US from Mexico and Canada, its USMCA partners, as well as an additional 10% tariff on Chinese imports. Those tariffs, he said, will remain in place until the flow of fentanyl and illegal immigrants into the US is halted.
— Donald J. Trump Posts From His Truth Social (@TrumpDailyPosts) November 26, 2024
Predictable as this announcement may have been, it still raises lots of (largely unanswerable) questions.
Will the Trump administration apply the tariffs across the board, as Trump’s message strongly suggests, or will it be more judicious in their application? In 2018, the Trump administration prioritised tariffs on intermediate goods to avoid hurting consumers. What will the broader economic effects be this time round? How severe will their impact be on inflation, economic activity and product shortages in the US, given this new round of tariffs will be levied not just on China but also the US’ other two biggest trade partners (Mexico and Canada)?
Is the US even ready or capable of reindustrialising in the targeted sectors? Six years after Trump began his trade war on China, the US may have diversified its imports away from China for low value-added goods (e.g. bedding, mattresses, and furniture), but diversification for higher value-added goods (e.g. smart phones, portable computers, lithium-ion batteries) is proving far harder, data from the Atlantic Council (of all places) suggests.
There are also serious questions about the legality of Trump’s proposed tariffs. Will Canada and Mexico retaliate with their own tit-for-tat tariffs? If so, just how badly could the resulting trade war spiral? Will it push the three countries into recession? How badly will it hit the Mexican peso, which has already faced significant depreciation so far this year? What will the legal consequences be? Lastly, how will the tariffs on Mexican and Canadian goods help the US tackle its opioid and fentanyl epidemic if precious little is done on the demand side of the equation?
“What tariffs should we put on their merchandise until they stop consuming drugs and illegally exporting weapons to our homeland?” asked the president of Mexico’s Senate, Gerardo Fernández Noroña.
One thing that is clear is that trilateral relations between the erstwhile “Three Amigos” of North America are about to become a lot more strained — for a while at least.
That said, the long-term impact may not be as severe as some are fearing. When Trump began his first presidential term, it was generally assumed that it would be disastrous for Mexico’s economy. Yet more or less the opposite occurred: the Trump administration’s trade war on China and resulting nearshoring strategy helped turn Mexico into the US’ largest trade partner.
Also, this is not the first time Trump has threatened to impose tariffs on Mexico. In 2019, he said he would impose a 5% tariff on all goods entering from Mexico unless it stemmed the flow of illegal immigration to the United States. Nine days later, Trump ditched the plan after Republican senators had threatened to try to block the tariffs if he moved ahead with them.
Canada Turns On Mexico
This time round, however, it’s not just Trump that’s talking tough on North American trade. A couple of weeks ago, Doug Ford, the premier of Ontario, Canada’s richest province, called for Mexico’s removal from the USMCA trade agreement due to its growing trade and diplomatic ties with China (a topic we covered just a couple of months ago).
“Since signing on to the United States-Mexico-Canada Agreement, Mexico has allowed itself to become a backdoor for Chinese cars, auto parts and other products into Canadian and American markets, putting Canadian and American workers’ livelihoods at risk while undermining our communities.”
Ford’s position is far from an isolated one. Danielle Smith, the premier of Alberta, Canada’s third richest province, expressed a similar view just days later, noting that “Mexico has taken a different direction” and that Americans and Canadians want to have “a fair trade relationship.” Chrystia Freeland, Deputy Prime Minister of Canada, said she shares the concerns of the United States regarding Mexico’s relationship with China.
The same apparently goes for Canadian Prime Minister Justin Trudeau. Last Thursday, just three days after meeting with Mexican President Claudia Sheinbaum on the side lines of the G20 meeting in Rio, he told a press conference that the USMCA would ideally continue as a trilateral trade deal, but hinted that if Mexico did not tighten its policy against China, other alternatives would have to be sought.
“We have an absolutely exceptional trade agreement at the moment,” Trudeau said. “We will guarantee Canada’s jobs and growth in the long term. Ideally, we would do it as a united North American market, but, pending the decisions and choices that Mexico has made, we may have to consider other options.”
Politicians in the United States and Canada have expressed growing concerns that under the USMCA, Chinese companies could assemble cars in Mexico and ship them north, which would spare them tariffs. In recent years, China has poured huge sums of money into Mexico to build factories and automotive plants. And trade is booming between the two countries.
Between 2010 and 2022 Mexico’s imports of goods from China more than doubled, from $45 billion to $119 billion. Recent data suggest that imports from China account for roughly one-fifth of all of Mexico’s imports, according to El Financiero. That’s up from around 15% in 2015. During the same period, the US’ share of Mexican imports has fallen from 50% to 44%, even as the US and Mexico last year became each other’s largest trade partner, for the first time in 20 years.
The Canadian government is also up in arms about the Sheinbaum government’s plans to radically rewrite Mexico’s mining laws. For over three decades, Mexico has been a veritable paradise for global mining conglomerates, many of them based in Canada, serving up some of the laxest regulations in Latin America. That is now changing. The proposed reforms include a near-total ban on open-pit mining and much stricter restrictions on the use of water in areas with low availability. Just this week, Mexico’s finance ministry (SHCP) has proposed increasing mining royalties in the federal budget bill for 2025.
Canada’s proposals to eject Mexico from USMCA have an ironic twist given it was Mexico’s AMLO government that allegedly intervened to helped seal Canada’s membership of the USMCA. By late 2018, relations between Trump and Trudeau had soured to the point where Trump was threatening to leave Ottawa out of the trade deal altogether after already signing a preliminary agreement with Mexico. But AMLO apparently managed to convince Trump to include Canada in a three-way deal.
Six years later, Trudeau has repaid the favour by threatening to throw Mexico under the bus in a blatant attempt to ingratiate himself with Trump. Other factors are at work, including electoral considerations (for both Trudeau and province premiers like Ford) and economic drivers.
Competing for the Same Prize
Mexico and Canada may be USMCA partners but they are ultimately competing for the same prize: US market share. By contrast, the trade between the two countries is relatively modest. In the first three-quarters of 2024, Canada sold $309 billion worth of goods and services to the US and just $9.6 billion to Mexico. And while Canada has a trade surplus with the US, its trade balance with Mexico is constantly in negative territory. In the first nine months of this year alone, it has clocked up a trade deficit with Mexico of $4.28 billion.
More important still, since the signing of the USMC, Canada’s trade with the US has more or less stagnated. Data from the U.S. Census Bureau indicate that in 2018, Canada’s share of imports from the US has barely budged. Meanwhile, Mexico has overtaken both China and Canada to become the US’ main trade partner, primarily as a result of the nearshoring trend sparked by the US’ trade war with China during the first Trump administration.
So, the combination of USMCA, Trump’s tariffs on China and the nearshoring trend it helped set in motion has been a boon for Mexico’s manufacturing sector, attracting billions in investment and creating millions of jobs, while doing little for Canada’s trade with the US. Given as much, it is perhaps not so surprising that some of Canada’s most powerful politicians are calling for the scrapping of USMCA. By taking Mexico out of the equation, the United States and Canada could then update their 1988 bilateral treaty, which is apparently still in force.
The Mexican government initially responded to the threats from its two USMCA partners by trying to assuage their concerns that Mexico would be used as a backdoor for China while at the same time insisting that it would not sacrifice its growing trade relations with China. Deputy Mexican Foreign Trade Minister Luis Rosendo Gutierrez last month said Mexico would continue to prioritise the U.S. and Canada due to their strategic alliance through USMCA, but that did not imply Mexico would “break with China” or “deny them investments in Mexico.”
But the more recent threats appear to have struck a nerve. This week, Mexico’s Secretary of Economy, Marcelo Ebrard, said he would propose a Plan B on China to the United States to strengthen North American productivity and reduce dependence on Chinese parts and components:
In short, until now, we do have or have had certain common visions or, at least, certain common appreciations; but we have not had a Plan B. And maybe Mexico can put that on the table, not be on the defensive but propose it. In fact, we are already working with many companies [on this].
To what end? To reduce the volume of our imports not only from China but from Asia as a whole, because we have seen an exponential growth of imports from several countries in Asia, not only from China. So, we have to increase our national content, but we have to work with the companies that export, which are part of the circuit that I am describing right now.
In its Work Plan for the period 2024-2030, Mexico’s Ministry of Economy indicates that the federal government has already begun working with companies with big operations in Asia, including Foxconn, Intel, General Motors, DHL and Stellantis, to identify products that can be manufactured in Mexico.
It’s also worth recalling that in April Mexico imposed tariffs of between 5% and 50% on imports of 544 imported products, including footwear, wood, plastic, furniture, and steel, from countries with which it does not have a trade agreement. As we noted at the time, the tariffs had one clear target in mind: imports from China, Mexico’s second largest trade partner, though the word “China” was not mentioned once in the presidential decree.
In other words, given the scale of the economic stakes for Mexico, with just over 80% of all its exports destined for the US market, it’s likely that the Sheinbaum government, like the AMLO government before it, will eventually accommodate US demands. In recent days, the ruling Morena party has even agreed to rewrite recently proposed laws aimed at eliminating a half-dozen independent regulatory and oversight agencies in order to precisely mimic the minimum accepted requirements under the trade accord.
But the Mexican government has also threatened to impose retaliatory tariffs against the US. And that is likely to hit sales of US producers in Mexico, lowering incomes and shrinking output further.
“If you put 25% tariffs on me, I have to react with tariffs,” said Ebrard a couple of weeks ago. “If you apply tariffs, we’ll have to apply tariffs. And what does that bring you? A gigantic cost for the North American economy.”
On Friday, the investor-state dispute panel into Mexico’s ban on GMO corn for human consumption is scheduled to publish its ruling. As we reported a couple of weeks ago, recent statements from senior officials in Mexico, including Ebrard, suggest that the panel will rule in the US’ favour. As a result, Mexico will face the starkest of choices: withdraw its 2023 decree banning GM corn for human consumption — or face stiff penalties, including possibly sanctions.
If the rumours prove true, the Sheinbaum government is likely to face similar legal challenges to many of the other sweeping constitution reforms it plans to pass in the coming months, including of the mining sector, housing, water management, energy and workers’ rights. As we noted, while the Mexican economy may have benefited enormously from rising trade with the US over the past five years, the price tag is growing as it becomes harder and harder to legislate in ways that benefit the people but harm the interests of US or Canadian businesses.
At the same time, trade with the US is guaranteed to suffer as Trump’s tariffs hit their mark. In other words, the benefits of USMCA membership are likely to recede in the coming months for all involved while the costs are likely to rise. And that is hardly the foundation for a healthy, long-term relationship.
Maybe Trump’s threats against Mexico is to force them to drop China and to totally depend on the US market for their prosperity. Yeah, nah! Trump is too erratic to risk that so it looks like counter-sanctions it is. I took a quick look at the top ten imports into the US from Mexico and it sounds like the US would be hard pressed to make up any resulting shortages in any case. And if there were shortages, Trump could hardly go to the Chinese to make up any shortfalls from them-
https://www.ilscompany.com/products-imported-from-mexico/
Poor Mexico, So Far From God, So Close to the United States.
Make California Mexico again.
Give back Texas too.
Even when Canada’s PM Mulroney was negotiating NAFTA with H.W. Bush I thought it was a seriously bad idea to be hitching the wellbeing of our economy to any other country’s wagon, the equivalent of creating an external dependency, putting all our eggs in one basket. Although expensive to build trade with the rest of the world, ultimately it would be better for economic stability and resiliency. I’ll be glad to see NAFTA gone, it’s an important first step.
By the way, Premiers Doug Ford and Danielle Smith are not credible people, their views are quite disconnected from reality.
I had the same thoughts when I emigrated to Canada in 1993, especially when the Liberals went back on their election promises and kept NAFTA and the hated regressive Goods and Services Tax (GST). Much better to diversify export markets, but instead Trudeau decided to kidnap a member of the Chinese business elite and is now doing his best to destroy relations with India. That’s only about 3 billion of the Earth’s population! And the full on support of a genocide to ruin relations with much of the rest of the world.
Now Canada is so dependent upon the US it will always be the obedient doggie, or become the short-term whipping boy until it remembers to “heel” properly. Very sad. And people like Doug Ford and Danielle Smith are doing their best to destroy what is left of the Canada I emigrated to.
After two failed attempts to militarily conquer Canada in the 18th and 19th centuries, it appears America finally succeeded under Clinton.
Canada is the remora of empires, having switched from the British shark to the American over the past 100 years …
“Those tariffs, he said, will remain in place until the flow of fentanyl and illegal immigrants into the US is halted.” Mexico should announce 15% tariffs on US goods that will remain in place until the US addresses its drug addiction problems by reducing wealth and income inequality and socialized Healthcare for all, and requires US business located in the US to hire only US citizens.
In other words, a15% tariff until the United States government actually does its job of caring for the American nation instead of its wealthy owners?
What are you? A communist? /sarc
The whole illegal immigration canard prevents us from realizing that it is the United States that’s stealing able bodied, comparatively well educated, young adults from other countries and ensuring their continued underdevelopment. We’re stealing the investments that other countries have made into their populations and then slanders them on immigration.
US licensing protectionism means that the US is disproportionately not brain-draining other countries, especially not through illegal immigration. A far smaller proportion of professionals are foreign-born than unlicensed occupation workers.
Where did you get that idea?
by having eyes and mind open and not allowing personal biases to influence thought processes, i would assume. akin to not blaming denizens of East Palestine for living near train tracks.
The American populace don’t just hate illegal immigrants. They also hate non-white legal immigrants, refugees, and people here on temporary work visas. But scary illegal immigrants are the tip of the spear.
Illegal immigrants, even ones here doing hard manual labor, are creaming off their society’s able body populations. They have to have the financial and social wherewithal to get trafficked to the US (or often, just get here legally and then disappear), find sufficiently remunerative work to keep body and soul together, and pay back the cost of their emigration. They’re comparatively better than what American employers can possibly get from the native born US population at the same price, that’s why the employers keep hiring illegals.
If by professional you mean lawyers, real estate agents, and various office fauna doing pointless work then perhaps the non-native born population is under represented. But go to a hospital or nursing home and see how many of the nursing staff come from the Philippines. Go to a *hard* engineering company like Nvidia and see how many of their engineers were born in India or China. The US creams these people off to make up for not producing sufficient numbers of engineers and nurses domestically.
While somewhat true, for decades qualified Americans have been either not hired or often fired because cheaper foreign workers, particularly H-1B visas in tech. Or one can look at union busting particularly in the trades and in meatpacking, where unions with their native workforce were replaced by cheaper, often very illegally hired, immigrants.
Then add the increasing costs and difficulties for Americans in getting the needed education for those hard skills.
It is too bad that e-Verify is likely not going to be pushed by the Trump Administration.
I agree that there are negative consequences on the native born workforce as well. I was simply pointing out that from the other side, the US efforts to “attract talent” looks like intentional efforts to capture the most capable portions of their population, who would have otherwise stayed home to strengthen their domestic industrial base and health care systems. Even at the lower end of illegal immigration, we’re talking about healthy young people with initiative and willingness to work hard for low pay for the promise of a better life, while the rest of the highly advanced economies is well below population replacement levels.
In a less predatory world, the US would publicly pay to support the needed level of STEM grads domestically and pay them appropriately during and after their schooling. But we don’t live in that world and haven’t been for a long time.
Before you get into moral high dudgeon, you should count to ten and then do a few seconds of research.
Even if you accept the offensive idea that only STEM workers count, here are the numbers:
% of foreign-born workers who work in STEM: 26%
% of US-born workers who work in STEM: 24%
https://ncses.nsf.gov/pubs/nsb20245/foreign-born-stem-workers
Not a huge difference.
You highlighted a study that points out that foreign born individuals are highly over represented for STEM workers with a masters or Ph.D. Note that I specifically said hard engineering whereas STEM encompasses a broad range of difficulty and includes software engineers and database administrator who may not even have a BSci degree.
thank you hermana Emma, exactly right.
We need another John Patrick Reilly coming from El Norte.
“The whole illegal immigration canard prevents us from realizing…”
An important argument.
Mexico and Canada will both retaliate with punishing tariffs. Trump is a fool if he thinks he can win this fight.
VAT at 20%?
One wonders how much of the near-shoring is just re-routing of Chinese manufacturing, certainly rerouting of components.
https://english.elpais.com/economy-and-business/2024-03-15/the-trade-route-from-china-to-mexico-soars-by-60-in-january-and-establishes-itself-as-one-of-the-largest-in-the-world.html
Still, China is developing a BYD factory in Mexico for the Mexican market. so its not just rerouting.
https://www.reuters.com/business/autos-transportation/chinese-electric-carmaker-byd-sees-ev-mexico-sales-ramping-up-100000-2025-2024-10-08/
Given the global manufacturing and trade trends (and global south growth versus US growth), Trump’s volatility (and US non-agreement capability), Mexico should announce compliance with Trump while doing the opposite (and don’t sign anything!).
Es s Ce Tera:
Doug Ford and Danielle Smith are far-right populists who are pounding their provinces into the gutters, but the people of those provinces are cheering them on. I’m in British Columbia where the liberal NDP (New Democratic Party) just won a very narrow victory over the newly formed Conservative Party of BC. The Conservative Party leader, John Rustad, puts Ford and Smith to shame in his views of completely rolling back any social gains of the past 40 years. If our Premier doesn’t work very hard to please the votors of this province, he’s going to lose badly next time to the Conservatives. The Liberal Party in BC (who were actually conservatives in disguise) dissolved themselves just three weeks before the election and forced all their candidates to choose some other party to join. Some went to the NDP and some went Conservative and some went Independent. The Liberal Party did this because they saw the vote on the right was being split and above all else, they didn’t want the NDP to retain power.
I’m in an extremely conservative part of the province and the votors here would just love for Rustad to privatise health care, deport immigrants, dismantle homeless camps and let them freeze to death on the streets, jail drug users, and join Alberta in leaving the Canadian Pension Plan.
As for tariffs levied by the U.S. on Canadian products, BC’s lumber industry is already in crisis. This may sound strange, but BC is running out of trees. Not trees, really, but cheap trees. And the companies don’t want to cut the trees that cost a lot to bring down. These companies are moving to……the U.S.
https://thetyee.ca/News/2024/10/09/BC-Forest-Companies-See-Future-US/
This is causing a crisis in mill towns all over BC:
https://thetyee.ca/News/2024/10/03/Inside-BC-Forest-Industry-Crisis/
and this crisis is being blamed on the provincial governmant, natch. Hence the move to the brand new Conservative party who tells them they will “fix it”. They can’t, of course, but that’s what they promise.
Meanwhile, in Ottawa, Trudeau the entitled brat, is alienating the entire population with his ethical scandals and insistence on remaining leader when the writing is on the wall. His wife left him and now the country has also left him, but he is blind to it. This will propel Pierre Poilievre and his Conservatives into government. There they will fall all over themselves to do whatever Trump says to do. The federal NDP is in dissaray and need a new leader. The Liberals will be swept away and gone for 20 years. We’re doomed, I tell you, doomed.
I would join my friend in South Africa, but I’m too old now, so we’ll stay here on the old doom-stead and wait it out. Shouldn’t be long.
I’m in Toronto so have a firsthand view of Ford, I agree with your assessment. In fact, I think team Trump learned their approach from Doug Ford.
Now that you mention lumber, as I recall softwood was always an issue between Canada and the US, to the point of it being excluded from NAFTA. The fact that forests in Canada are owned by the government, the lumber sold to lumber mills at lower rates, is (mistakenly) seen by the US as being equivalent to a subsidy. If it were a subsidy then why is the BC forest industry in crisis?
Team Trump likely learned more from Doug’s brother Rob who preceded both on the political scene, first as a Councillor and then Mayor of Toronto.
It was indeed probably very instructive to the organized right that Rob Ford being a crack addict didn’t seem to be an impediment to his chances, might actually have helped him.
why is the BC forest industry in crisis?
See: https://thetyee.ca/Analysis/2024/11/25/What-If-BC-Totally-Wrong-Forest-Management/
https://thetyee.ca/News/2024/10/03/Inside-BC-Forest-Industry-Crisis/
An important comment, for which I am quite grateful.
If you want to come to South Africa because you don’t like the corruption and incompetence of the Canadian government, with all due respect, either you need to check what our government is up to (difficult, given the new one-party state and the same old censored propaganda machine) or perhaps you have defined those words differently as they apply to us.
Notice that while Mexican exports have increased significantly since NAFTA, Mexican growth has fallen way behind that of the US and Canada. Mexican growth since NAFTA has been below that of virtually any country in the Americas:
https://fred.stlouisfed.org/graph/?g=1qtRj
August 4, 2014
Real per capita Gross Domestic Product for Mexico as a percent of Real per capita Gross Domestic Product for United States & Exports of Goods and Services by Mexico as a percent of Gross Domestic Product, 1992-2023
(Indexed to 1992)
https://fred.stlouisfed.org/graph/?g=1tbvc
August 4, 2014
Real per capita Gross Domestic Product for Mexico as a percent of Real per capita Gross Domestic Product for Canada & Exports of Goods and Services by Mexico as a percent of Gross Domestic Product, 1992-2023
(Indexed to 1992)
If this all results in Mexico leaving NAFTA or whatever it is called now, that could be used as an opportunity for Mexico to re-sovereignize and re-protectionise its agriculture and food sector.
“If this all results in Mexico leaving NAFTA…”
NAFTA was disastrous for Mexican farm communities. Mexican farmers could not compete with American farmers, but working on grain production with China a revival of farm production could be accomplished. China has been working on seed development in maize among other grains and the results are impressive.
https://www.chinadaily.com.cn/a/202411/15/WS67375236a310f1265a1cdae8.html
November 15, 2024
Chinese scientists achieve major success in maize harvesting
By Yan Dongjie and Liu Kun
Beijing – A recent research breakthrough by Chinese scientists allows for a reduction of around 7 percent in the moisture content of maize kernels at maturity, facilitating mechanical harvesting and threshing.
This week, the journal Cell published online a research paper * titled “A Zea genus-specific micropeptide controls kernel dehydration in maize” by the team led by Yan Jianbing, professor of Huazhong Agricultural University…
* https://www.cell.com/cell/fulltext/S0092-8674(24)01212-1
If Mexico considers this new Chinese corn development to be a genetic threat to its treasure chest of heirloom corn varieties, then Mexico may well not be interested.
But if NAFTA disappears, then Mexico will be entirely free to decide.
President Scheinbaum responds: https://x.com/davidrkadler/status/1861501962233225513 (Reading enviously as I anticipate Trudeau’s milquetoast bootlicking.)
getting rid of free trade! GOOD RIDDANCE TO BAD RUBBISH!!! sovereignty and nationalism are a must, if we are to be free to chart our own destiny.
i bet mexico will wipe their brow and say we are finally free.