MEXICO CITY — President-elect Donald Trump's pledge to impose tariffs on Mexico and Canada threatens to upend decades of North American integration. The integration is a difficult process that repositions the United States' two neighbors as suppliers of raw materials and finished goods to the world's largest economies.
In some ways, Canada and Mexico have traded positions over the past 30 years.
Before the North American Free Trade Agreement (NAFTA), Mexico was a middling oil nation without a competitive industrial base. Currently, the country's economy relies primarily on manufacturing, tourism, agricultural exports, and remittances from Mexicans abroad.
Meanwhile, Canada grew from a small but advanced manufacturing economy to an oil and gas giant, supplying vast quantities of hydrocarbons to the United States.
All of these changes were made to fit neatly into the larger needs of the U.S. economy.
But the trilateral union is facing headwinds, with Trump on Monday imposing a flat 25% tariff on members of the United States-Mexico-Canada Agreement (USMCA) in retaliation for their role on his first day in office. he threatened. Immigration and the illicit fentanyl trade.
“Both Mexico and Canada have the absolute right and power to simply resolve this long-smoldering issue. We hereby demand that they use this power, and that they Until they do, it's time for them to pay a very high price!'' TrumpPosted on Truth Social.
Beyond the harmonious diplomatic relations of North America, the foundation of the continent's manufacturing base is at stake.
“Value chains, value chains are designed around the context of integration,” said Ildefonso Guajardo, Mexico's former economic secretary and USMCA chief negotiator.
The value or supply chain (the production and assembly of parts across the continent before being put into a final product) has become a key competitive advantage for North American industry as a whole and a raison d'être for a wide range of Mexican industries. It has become.
These chains exist only in Mexico thanks to massive infrastructure investments, from road and rail connections to gas pipelines and industrial parks that can cover nearly 10,000 acres.
And the value chain extends beyond car manufacturers and TV manufacturers. For example, gas pipelines in Mexico pump natural gas from the United States.
Overall U.S. hydrocarbon exports, including pipeline exports and liquefied natural gas exports by ship, have surged since 2014, when the U.S. sold 1.5 trillion cubic feet of gas overseas, and are expected to grow by 2023, according to U.S. Energy Magazine. reaches 7.6 trillion cubic feet. Management (EIA).
Pipeline exports are directed exclusively to Canada and Mexico. Canada's gas imports began to plateau at about 1 trillion cubic feet per year in 2014, and Mexico's pipeline imports increased, reaching 2.24 trillion cubic feet in 2023, according to the EIA.
Energy and manufacturing are by far the largest sectors of North American trade, but the food supply has also undergone a major transformation, opening up markets for U.S. grain and Mexican agricultural products and revitalizing rural areas in both countries. .
Bob Hemesas, chairman of the Farmers for Free Trade Committee, which operates corn, soybean and hog farms in Iowa, cited Canada, China and Mexico as “the three largest export markets for U.S. farmers.” . “The United States exported $84.7 billion in food and agricultural products to these three countries alone last year, accounting for nearly half of all food and agricultural exports. Mexico and Canada are also USMCA and NAFTA partners, and these three countries alone accounted for nearly half of all food and agricultural exports. The agreement has increased U.S. agricultural exports to these countries by nearly 300 percent,” Hemesas added.
“We still don’t know exactly what President Trump will do once he takes office, but we do know that a renewed trade war will hurt American farmers. It would mean a loss of agricultural trade markets, an advantageous position for agricultural exporters in South America and other regions, and billions of dollars in export losses.”
President Trump, who has opposed NAFTA, has threatened in the past that it could undermine the economic integration that resulted from the 1994 agreement.
During his first term, he pushed through negotiations on the USMCA to replace NAFTA, and although the two agreements had many similarities, he declared the end of the “NAFTA nightmare” at the USMCA signing ceremony and called for a new agreement. “Truly fair and mutually beneficial trade.” This agreement will preserve jobs, wealth, and growth here in America. ”
The new attacks on USMCA are frustrating to some NAFTA and USMCA defenders, most of whom did not want to renegotiate the original agreement in 2017.
“Basically, what you lose is credibility, because, you know, this agreement was negotiated by the Trump administration, and if the country doesn't stand by its words, in this case, what was negotiated by the president-elect. , because the first thing you lose is credibility,” Guajardo said.
“Who will believe you the next time you promise to enter into an agreement, regardless of the nature of the agreement?”
Broader concerns with larger geopolitical considerations have some observers jaded.
“Violating the terms of our own agreement will only damage our reputation and erode everyone's confidence in the United States. And it will reduce our mutual defense alliance to a 'pay-as-you-go' mafia style” It doesn't help to make it a fee,” said a former U.S. trade negotiator who spoke candidly on condition of anonymity.
However, there is a widespread perception that this instability is a feature, not a bug, of President Trump's diplomatic style.
Rep. Henry Cuellar (D-Texas) of Laredo, an active supporter of U.S.-Mexico trade, told Blake Berman on NewsNation's “The Hill” that President Trump has at least threatened to He said it would attract attention.
“Well, let me put it this way: Laredo is the largest port. We handle 40 percent of all trade between the United States and Mexico. We understand that this is a negotiating tool and a way to gain influence. We know that Mexico will be at the table,” Cuellar said.
“But no one wants to impose a 25% tariff on them. And the Mexicans are threatening to do the same thing. And we don't want to be involved in that.”
In 2019, President Trump successfully used tariff threats against former Mexican President Andrés Manuel López Obrador to force Mexico to tighten its internal immigration controls.
President Claudia Sheinbaum, López Obrador's successor and protégé, responded to the new threat with a letter raising other grievances, including illegal U.S. exports of firearms and drug consumption, and imposing retaliatory tariffs on U.S. goods. I swore.
Mexico is the largest importer of U.S. goods, including energy products such as natural gas.
“President Trump, America's immigration and drug consumption cannot be addressed with threats and tariffs. What is needed is cooperation and mutual understanding to address these critical challenges,” Sheinbaum wrote.
“For any tariffs, there will be a similar response until they endanger companies we share. Yes, they were shared. For example, Mexico's major exporters to the United States include General Motors. , Stellantis, and Ford Motor Company, which entered Mexico 80 years ago. This will lead to inflation and job losses.”
Mr. Sheinbaum's vision of the United States and Mexico without Canada was a mirror image of Canadian Prime Minister Justin Trudeau's own response, touting the U.S.-Canada relationship and subtly criticizing Mexico.
“Mr. Trump is always using a divide-and-conquer approach. I believe that at some point, it should be better understood by the other two parties that it is a ship that we all share. There are a lot of Canadian companies in Mexico. Nadda has a lot to lose. So regardless of the political rhetoric that comes before Canada's next election, most business people in Canada and Mexico will end up doing what we did in the initial negotiations. I think we need to look at this,” Guajardo said.
Whether calm heads prevail will also depend on the risk appetite of the incoming Trump administration.
While there is broad agreement among economists that a trade war with Canada and Mexico would result in higher prices for U.S. consumers, the two countries' relationships with the United States are asymmetrical, and both countries are under President Trump's leadership. This means that they stand to lose much more than they did.
And some of Canada's claims against Mexico – that the Latin American country has broader trade ties with China – may backfire, leaving Mexico with no choice but to further expand its ties in bilateral negotiations. may have the influence of claiming that it is not.
But even that influence is likely to prove insufficient in the face of the Trump administration's efforts to undermine North American integration.
Victor Arriaga, a former Mexican diplomat and editor of Mexico's daily newsletter on U.S. politics, said, “Mexico will likely enter into a bilateral agreement with the United States under new, and perhaps most unfavorable, asymmetric conditions.'' “There is a possibility that we may negotiate sector-specific agreements.”
“China cannot replace the USMCA. From a cost and chain supply perspective, the US market remains attractive. Access to the US market for products produced in Mexico using Chinese technology is Historically, Mexico's attempts to diversify its trading partners have met with limited success.
But even if commercially advantageous, the impact on the United States could cause a global shock.
“When Britain left the EU, it just screwed itself, but if we leave USMCA and NATO and all the other alliances, the world will be screwed,” the former US trade negotiator said. spoke.
