Trucks travel into Canada at the Pacific Highway U.S-Canadian border crossing in Blaine, Washington, March, 2025.JASON REDMOND/AFP/Getty Images
China will be front and centre at the renegotiations of the United States-Mexico-Canada Agreement on trade despite not having a seat at the bargaining table.
The Trump administration refused to renew the trilateral trade pact. But with the USMCA now subject to annual reviews, the U.S. is using the continuing trade talks to put pressure on Canada and Mexico to collaborate with its efforts to undercut the Asian country.
Washington is alleging that China is exploiting loopholes in the USMCA to avoid U.S. tariffs on its exports by using Mexico and Canada to gain back-door entry to the U.S. market. But the U.S. is being somewhat disingenuous about this issue to gain an edge of its own.
There is a difference between blatant customs fraud and legal shipments facilitated by third countries as part of global trade. The U.S., however, appears intent on blurring that distinction as part of the current negotiations.
Doing so provides Washington with a convenient pretext to fiddle with the USMCA’s rules of origin and compel more U.S. content to the detriment of the two other signatories to the pact.
Shameless American self-interest dressed up as a security issue? What a shocker.
Canada and Mexico know the score, but there is a risk the U.S. will get its way.
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Washington is cracking down on a practice known as “transshipment.” This occurs when foreign goods travel to an intermediary country, for example, by ship, before being transferred to their final destination, potentially by another mode of transportation, such as rail or truck.
Sometimes those foreign products are used as inputs in an intermediary country’s manufacturing sector before the finished products are shipped to their final destination.
Transshipment is a legitimate logistical process. It can also be abused by criminals to evade tariffs or sanctions through fraudulent customs declarations that misclassify goods, false certificates of origin and negligible processing in intermediary countries.
The U.S. is focused on foiling China’s attempts to exploit transshipment by including new stipulations in trade deals with intermediary countries, including Vietnam.
Washington is particularly concerned about the illegal transshipment of steel, aluminum, textiles, apparel, electronics, solar panels, agricultural products, vehicles and auto parts.
“These deceptive practices undermine U.S. trade laws, distort fair market competition, and pose a risk to the integrity of global supply chains,” states an alert issued by U.S. Customs and Border Protection.
How big is the problem? It depends on whom you ask.
Artificial intelligence company Altana estimates that Washington misses out on roughly US$40-billion annually in tariffs because of “misclassified, mis-valued, and transshipped goods that pass through Mexico and Canada on their way to the U.S.”
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Separate research by The Brookings Institution, however, found “there is evidence pointing to China circumventing U.S. tariffs and entering the U.S. market mainly via Mexico.” In contrast, it only found “some evidence of circumvention via Canada,” partly because Chinese foreign direct investment in our country fell between 2018 and 2023.
Obviously, it is also in Canada’s interest to stamp out such customs fraud. The Carney government received a complaint about China’s dumping of thermal paper and the threat it poses to domestic jobs.
Trouble is, the U.S. is also proving to be an untrustworthy trading partner.
The USMCA already contains provisions to curb China’s encroachment in sensitive sectors.
When it comes to automobiles, for instance, the USMCA’s rules of origin, the criteria used to define the national source of a product, are already stringent.
The current North American content requirement for automobiles is 75 per cent to qualify for preferential tariffs under the USMCA. Washington wants to increase it to 82 per cent.
(Autos may be a special case, but the generally accepted global threshold for products to comply with rules of origin is more than 50 per cent.)
The Trump administration also wants to shoehorn in a new requirement that 50 per cent of a vehicle must be made of U.S. parts. This additional demand smacks of greed.
USMCA Article 32.10, meanwhile, restricts the ability of signatories, including Canada, to enter into a free-trade deal with China. It doesn’t directly name the Asian country. Instead, the provision uses coded language to refer to it as a “non-market country,” effectively providing the U.S. with a veto over any free-trade deal between China and Canada (or China and Mexico, for that matter).
That, on its own, was already a huge concession on Canada’s part.
To be clear, China is undoubtedly exploiting gaps in the USMCA and other trade pacts to skirt punitive U.S. tariffs. But as experts have noted, that was an entirely predictable outcome of President Donald Trump’s trade war.
The solution is better enforcement at the border — not more American greed.