Canada Willing to Bypass Mexico in U.S. Trade Deal

"Canadian leaders are signaling they are willing to throw Mexico aside in a bid to curry favor with the incoming Trump administration as they prepare for tough trade talks.

With a scheduled review of the U.S.-Mexico-Canada Agreement beginning next year, Canadian leaders, including Prime Minister Justin Trudeau and his finance minister, have said they are ready to make a new deal with President-elect Donald Trump alone, cutting Mexico out.

Canadian leaders say they are worried Mexico has become a backdoor to the North American free-trade zone for Chinese products, much of which would otherwise face steep tariffs in Canada and the U.S. 

Trudeau said he raised these concerns with Mexican President Claudia Sheinbaum on the sidelines of the G-20 summit in Brazil.

"There have been real and genuine concerns raised about Chinese investment into Mexico that I brought up directly with the Mexican president, that I know the three countries are going to have to lean in and work on," Trudeau said on Thursday. "Ideally, we do that as a united North American market, but pending decisions and choices that Mexico has made, we may have to look at other options."

Sheinbaum dismissed Trudeau's comments as campaign rhetoric ahead of Canadian elections next year. Trudeau's approval ratings have plunged in recent months.

Mexican trade officials say there is no evidence China is using Mexico as a backdoor to export goods to the U.S. and Canada tariff-free. U.S. and Mexican customs authorities coordinate trade inspections, and both countries impose hefty sanctions on companies breaching import rules.

"The prime minister doesn't agree with removing Mexico from the treaty, he told me quite clearly, and we agreed to continue talking," Sheinbaum said of Trudeau.

Canadian officials are trying to isolate Mexico to align themselves more closely with Trump, who criticized Chinese investment in Mexico during the presidential campaign. Trudeau has had an antagonistic relationship with the president-elect, but he is trying to build closer ties to demonstrate the value of the countries' trade links.

The jostling highlights the angst Trump's victory has caused in Canada and Mexico, countries that send 80% of their exports to the U.S. 

The three countries replaced the North American Free Trade Agreement with the USMCA during Trump's first term.

Trump said he would reopen the USMCA to get better terms for the U.S., under provisions of the trade deal allowing for a review of the agreement in 2026, though discussions among the three countries are expected to start next year. 

Trump also has promised to implement protectionist trade measures like across-the-board tariffs on all imports soon after he becomes president.

The U.S. conducted $1.6 trillion in trade within the USMCA in 2023, according to U.S. government data. Mexico is the U.S.'s largest trading partner, with Canada a close second.

Luis Rosendo Gutierrez, Mexico's deputy trade minister, said on Tuesday that China's foreign direct investment is significantly higher in the U.S. and Canada than in Mexico. Gutierrez said 68% of China's investments in North America go to the U.S., more than 31% to Canada and just 0.4% to Mexico.

"Check your data, there it is. What are you talking about?" he said of the backdoor fears.

During the presidential campaign, Trump often singled out Mexico's auto industry and its ties with Chinese manufacturers. At campaign rallies, he said he would impose duties ranging from 100% to 200% on cars from Mexico. "We're not going to let it happen. We're not letting those cars come into the United States," he said during one campaign rally in October.

The Mexican government said there are no Chinese carmakers manufacturing in Mexico, while China's BYD has a bus-manufacturing plant in California.

Trudeau's finance minister, Chrystia Freeland, said she shared the "grave concerns" harbored by the Biden administration and advisers to Trump about Chinese investment in Mexico. "We are perfectly aligned with the U.S., and that means we are not a backdoor to Chinese unfair-traded goods. The same cannot be said of Mexico."

The premier of Ontario, Canada's most-populous province and home to the country's auto industry, said provincial leaders agreed that Canada should cut a deal with the U.S. that doesn't include Mexico.

"We need a bilateral trade deal with the U.S. and a separate bilateral trade deal with Mexico," said Doug Ford, Ontario's premier.

Some critics fear that Canada's effort to isolate Mexico could backfire. Former Mexican officials point out that during the complex trilateral negotiations in 2018 that led to the creation of the USMCA, many politicians in Canada suggested that the country needed to negotiate directly with the U.S.

Yet, as trilateral talks advanced, Mexico was first to reach a preliminary agreement with the U.S. in the summer of 2018.

Canada has taken steps to align itself with U.S. policies aimed at China. Trudeau's government in August matched the Biden's administration's 100% tariff on Chinese-made electric vehicles and a 25% surtax on Chinese steel and aluminum products.

The auto sector will be a main focus for the USMCA talks, as the industry has become intertwined in the three countries.

Parts from a car manufactured in the U.S. can travel back and forth between the countries seven times before final assembly, said Flavio Volpe, president of the Automotive Parts Manufacturers' Association, a Canadian industry group that represents 250 companies.

Mexican officials say they want a new framework on China when consultations for the 2026 USMCA review begin next year.

"I think we're going to have to talk to President Trump about USMCA in February," Economy Minister Marcelo Ebrard said on Thursday. "Knowing him, you better hurry up, right?"" [1]

China is not the only problem in Mexico - Trump relationship. Trump is ready to move production into USA in order to help his voters with good jobs. Mexico is keeping down Mexican workers and competing unfairly with Trump voters. Trump has to cut Mexico out from USA trade in order to produce lasting legacy.

The same way Western European countries have to cut out Lithuania and other low income countries in order to recover production jobs in Western Europe. Enough already to hear cries of Lithuanian elite's joy when Germany is suffering and is forced to buy cheap and low quality Lithuanian merchandise.

1. World News: Canada Willing to Bypass Mexico in U.S. Trade Deal. Monga, Vipal; Perez, Santiago.  Wall Street Journal, Eastern edition; New York, N.Y.. 25 Nov 2024: A.18.