The Strategic Priority for Canada: A Clear and Unified Vision for North American trade

Canada’s economy is once again under threat by the US, and alarm bells have been triggered in Ottawa and Mexico City following President-elect Donald Trump’s statement that starting on January 20, 2025, a blanket 25% tariff will be imposed on exports from Canada and Mexico. Furthermore, the ban will remain in effect until both countries halt the flow of drugs, especially fentanyl, and illegal immigrants, into the US. His statement has also raised significant concerns among both the Canadian public and private sectors, as it poses a substantial risk not only to trade but also to the broader economy, potentially jeopardizing jobs and undermining the stability of businesses dependent on exports to the US, which accounted for 77 percent of Canada’s total merchandise exports in 2023.

If the incoming US administration enforces the 25% tariff on Canada and Mexico, it would not only lead to higher prices for goods and services but also provoke retaliatory responses with potentially serious economic consequences and negatively impact consumers and their welfare in all three countries. Moreover, it would disrupt North American supply chains, potentially forcing hundreds of businesses to close, relocate, or integrate with other regions, undermining the competitiveness and efficiencies that Canada, the US and Mexico have built together over the last three decades. 

Given this challenging scenario, it is difficult to understand why some Canadian premiers, namely Doug Ford of Ontario and Danielle Smith of Alberta, have proposed, as part of Canada’s response to this risk, excluding Mexico from any future trade negotiations with Washington. Additionally, the lack of coordination between national and provincial levels in developing a robust “Team Canada” approach to addressing this imminent tariff is concerning.

Cutting Mexico out of the Canada, United States, Mexico Agreement (CUSMA) by arguing, for example, that Mexico is welcoming Chinese investments in the automotive industry, which puts Canadian and US workers at risk is a poor strategy from the outset for Canada, as it would weaken its bargaining power against Washington. Instead, Canada should strengthen its position by teaming up with Mexico, now the US ‘s top trading partner, leveraging their shared interests and previous experience in building negotiation capacity together, while also addressing concerns about Chinese investments in Mexico. Indeed, positive relations with Mexico are crucial, not only for navigating the upcoming CUSMA review in 2026 but also for tackling the various challenges likely to arise during the next four years under the Trump administration. In this vein, Canadian authorities at all levels should heed the advice of US Ambassador to Canada, David Cohen, who has made it clear that excluding Mexico from any future trade  agreement may not be in Canada’s best interest, as well as that of former Canadian diplomat Colin Robertson, who emphasized that Mexico is both a valued trade partner and a critical ally in negotiations with the US. 

Formulating plans to address the expected trade tensions with the incoming US administration without a clear and unified vision for the future of North American trade, could be catastrophic. Therefore, the Canadian government must first recognize that the economic integration already achieved in North America serves as a global example of collaboration, one that other regions around the world have sought to emulate and should therefore not be taken for granted. While it is acknowledged that full integration has not yet been realized and significant challenges remain, the positive results are evident to all. The commitment to advancing this economic consolidation, rather than moving backward, should be prioritized. NAFTA and now CUSMA have provided extraordinary frameworks to advance trade cooperation and promote the integration of regional supply chains across industries such as the automotive field, agrifoods, energy and natural resources, pharmaceuticals and medical devices, technology and electronics, aerospace, chemicals and plastics, transportation and logistics, among others.

From a Canadian perspective, trade with both the US and Mexico has been growing steadily over the years. Total merchandise trade between Canada and the US tripled between 1993 and 2018, while trade between Canada and Mexico increased nearly tenfold during the same period. Moreover, since CUSMA came into force, it has played a key role in continuing to boost trade. In 2023, Canada’s trade with the US was 29.6% higher than in 2019, while trade with Mexico grew by 24.2% over the same timeframe. It has often been said that Canada is a trading nation, and this is undoubtedly true. Two-way access to and from CUSMA partners, whether through exports, investments, or participation in supply chains, is vital to Canada’s economy and to building sustainable prosperity. When it comes to trade, it is in the best interests of all Canadians to protect and strengthen North American ties, not cut them.

Canada should view this new trade threat as an opportunity to foster constructive dialogue among North American partners, with the goal of strengthening the region. Trilateral discussions leading up to the “joint review” scheduled for July 1, 2026, by the Free Trade Commission – comprising ministerial-level government representatives from each country, as outlined in Article 34.7 of CUSMA – could address both traditional and emerging issues, from border security and immigration to trade and investment relations with China, as well as the need to keep CUSMA updated with rules that respond to emerging technologies such as artificial intelligence. During this review, the three nations will have the opportunity to propose any revisions they deem appropriate to the agreement. Furthermore, CUSMA specifies that the agreement will automatically expire in 2036 unless the parties agree in writing to extend it for another 16 years. Thus, the 2026 review represents a crucial milestone for Canada, the US, and Mexico to indicate whether they support or oppose the renewal of the agreement in 2036. If any nation opposes the renewal, further review meetings may be required until the concerns of the dissenting party are addressed, or CUSMA comes to an end.

This is a critical moment for Canada to reassess its position on regional cooperation and economic integration. A key starting point should be engaging in proactive, multilevel dialogue among the federal government, opposition, provincial governments, industries, and stakeholders. The goal must be to develop a unified vision that brings Canadians together. This vision should account for diverse perspectives, transcend political divides, and foster a collective commitment to safeguarding the jobs and economic integration built over decades of collaboration in the region. It should recognize Canada’s national interests while also acknowledging the importance of working with North American partners to drive prosperity. 

Canada’s vision for North American trade should also prioritize cooperation that leverages the region’s strengths, addresses key obstacles, and tackles the most pressing issues that hinder faster, more substantial progress. This will position the region to meet both current and future economic challenges. By focusing on shared values – such as free, fair, inclusive, and sustainable trade – the three nations can work together to build a more integrated, competitive, and prosperous North American economy, benefiting all. Establishing and acting on a clear, unified vision for the future of North America trade must be a top priority for Canada.