Prime Minister Mark Carney stated Thursday he would not publicly negotiate potential alignment of Canadian trade rules with the United States, as the U.S. and Mexico begin discussions regarding revisions to the United States-Mexico-Canada Agreement (USMCA).
USMCA Review and Potential Changes
The U.S. and Mexico agreed Wednesday to formally discuss possible changes to the USMCA, which is subject to a mandatory review this year. U.S. Trade Representative Jamieson Greer indicated a focus on “possible structural and strategic reforms,” including “stronger rules of origin for key industrial goods, enhanced collaboration on critical minerals, and increased external trade policy alignment.”
This potential for increased integration of the continental market, and efforts to reduce reliance on non-North American goods, has been described by analysts as a “Fortress North America” approach.
Canada’s Diverging Trade Policies
This development potentially contrasts with Prime Minister Carney’s efforts to lessen dependence on the United States and curtail what he termed “deepening integration.” In recent months, Canada and Mexico have pursued differing paths regarding alignment with U.S. external trade policies.
Carney recently reached a deal with China to eliminate tariffs on some electric vehicles and encouraged Chinese investment in Canada’s automotive sector, a move diverging from Washington’s stance. Conversely, Mexico has implemented increased tariffs – ranging from 5 to 50 percent – on approximately 1,400 products from countries without free-trade agreements with Mexico.
Former President Donald Trump initially downplayed Carney’s agreement with Beijing but later threatened a 100-percent tariff on Canadian goods should Ottawa pursue a trade deal with China, warning against Canada becoming a conduit for Chinese products entering the U.S.
Canada’s Negotiation Strategy
Asked Thursday about potential alignment with U.S. external trade policy, Carney declined to comment. He also resisted characterizing the USMCA review as a negotiation, despite signals from Greer indicating potential revisions sought by Washington.
“I find one of the most effective ways to negotiate is not to negotiate in public,” Carney told reporters. “We’ll wait until we have the broader discussions with the United States as part of a review, not a renegotiation but a review of” the USMCA.
The renewal of the USMCA is critical for Canada, facilitating over $1 trillion in annual Canada-U.S. trade and providing a safeguard against U.S. tariffs, with exemptions for products adhering to free-trade pact rules – covering over 90 percent of Canadian exports to the U.S.
Trump has previously suggested replacing the USMCA with bilateral agreements, raising uncertainty about the future of the tariff exemption.
The challenge for both Ottawa and Mexico City lies in navigating the Trump administration’s unpredictable approach to trade and foreign policy, which is simultaneously inward-looking and assertive, particularly concerning China.
Trump has dismissed the USMCA as “irrelevant” and questioned trade with Canada and Mexico, despite the industry’s long-standing role in continental integration. He has also imposed tariffs on key Canadian and Mexican industries, including steel, aluminum, and automobiles, in violation of the USMCA.
However, by exempting USMCA-compliant goods from tariffs, he has incentivized trade within the agreement’s framework. His administration, led by Greer, is developing a policy framework that could further integrate Canada and Mexico with Washington.
“There’s going to be a real geopolitical lens to the USMCA review … and it’s clear that China looms all over this,” said Geoffrey Gertz, a senior fellow at the Center for a New American Security. “A lot of those issues are tied to Mexico, in particular Chinese foreign investments into Mexico. But I think there’s a broader set of issues.”
Until recently, Canada generally aligned with Washington regarding China, mirroring its policies on steel, electric-vehicle tariffs, and restrictions on Chinese companies.
Greer outlined the U.S. vision for USMCA negotiations in December testimony to Congress, stating he would seek improved Canadian access to its dairy markets and streaming rules, as well as stronger North American content rules for non-automotive goods and increased collaboration on economic security-related tariffs and investment screening.
Brian Clow, a former deputy chief of staff to Prime Minister Justin Trudeau, predicted that demands for closer trade policy coordination would be a significant point of contention. “Putting together Trump and his team’s reactions to the Canada-China deal this month – that they’re not going to let Canada be a backdoor for Chinese components – with the changes Greer is seeking, I think it’s going to be a big, big part of what the Americans push.”
U.S. concerns regarding Chinese involvement in North American supply chains have primarily focused on Mexico, which lacks the foreign direct investment screening mechanisms present in both Canada and the U.S., raising concerns about Chinese auto companies establishing factories in Mexico to access the U.S. market duty-free.
Mexico City’s increase in tariffs on 1,400 products was welcomed by Greer in his December testimony, noting that “Mexico has taken significant concrete steps to address our concerns.”
With reports from Ian Bailey
Discover more from Archyworldys
Subscribe to get the latest posts sent to your email.
