Trump’s tariff threats make throwing Mexico under the bus more tempting. Canada must resist

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Nicolas Lamp is associate professor at the faculty of law at Queen’s University.

When it comes to the future of Canada’s trade, Canadian politicians are in survival mode. Monday night, after weeks of speculation on president-elect Donald Trump’s plans for North American trade, he said that he would “charge Mexico and Canada a 25% Tariff on ALL products” until the two countries stop the flow of drugs and migrants to the United States.

That came after Canadian leaders had already contorted themselves to salvage the trade relationship. To placate the United States and avert an onslaught of hyper-competitive Chinese imports, Canada took the extraordinary step of imposing WTO-inconsistent tariffs on Chinese electric vehicles, steel and aluminum back in October. And last week, Canada’s premiers and some members of the federal government signalled their willingness to turn even further away from Canada’s traditional embrace of open trade by mooting the possibility of excluding Mexico from a future North American trade agreement.

It is this move to sideline Mexico that we should be particularly concerned about. Now that Mr. Trump has put forth a plan that could be seen as making Canada suffer for Mexico’s sins, the option may seem even more tempting. However, then and now, to throw Mexico under the bus would be another case of Canada accepting the high costs of sacrificing long-standing objectives of Canadian trade policy – such as deeper integration with a diversified set of like-minded trading partners – for highly uncertain gains.

Proposed Trump tariff poses big risk to Canadian industry, consumers

All of America’s trading partners are looking at what they can offer the United States in negotiations and are readying retaliation in case those negotiations break down. Canada is the only country that is taking the path of anticipatory obedience: it is offering the Trump administration concessions before the latter has even asked. Canada is sending the message to Mr. Trump that he does not need to bother with the dividing part of his familiar divide-and-rule playbook: we’ll divide ourselves, so he can focus on ruling. In the process, Canada is encouraging its partners – first and foremost Mexico itself – to follow Canada’s lead in looking after their own immediate interests first. The damage to Canada’s reputation as a reliable partner will be lasting.

The tragedy of all of this is that it is so unnecessary. It is true that Chinese-made cars have been flooding into Mexico. Ontario Premier Doug Ford and those who support his call to exclude Mexico are concerned that Chinese auto parts could be transshipped through Mexico to the United States and Canada. But there is no evidence that that is happening at the moment, and for good reason: the Canada-US-Mexico Agreement (CUSMA) – the successor to NAFTA that Canada and Mexico negotiated with the first Trump administration in 2018 – contains rules of origin that ensure that products that benefit from duty-free treatment actually originate in Mexico.

During the CUSMA negotiations, Canada and Mexico worked with the first Trump administration to tighten those rules of origin compared to the original NAFTA and thereby managed to defuse much more radical proposals from the United States. It is unclear why Canadian politicians believe that a similar approach – working with Mexico to convince the United States to manage trade issues through creative rulemaking – could not succeed this time.

Even the worry that Chinese producers could establish factories in Mexico and use them to circumvent the rules of origin could be addressed in this way. The CUSMA already sets a precedent for treating Chinese investors in Mexico differently from other investors. The U.S. has signalled an interest in adopting a similar approach of differentiating between companies for purposes of granting them market access. Canada could play a constructive role by advocating for such changes instead of trying to push Mexico out of the agreement.

The proposal also ignores the economic harm that Canadian companies would suffer if Mexico was excluded from a future North American trade agreement. Canadian auto parts companies, such as Magna, are heavily invested in Mexico and would risk being cut off from North American supply chains. And losing Mexico as a base for cheap auto parts would further imperil the competitiveness of North American car producers – who are already handicapped compared to their European and East Asian peers by the restrictions on their ability to use inputs and technology from China. Finally, excluding Mexico from “Fortress North America” would deprive the United States and Canada of leverage to convince Mexico to stem Chinese car imports into Mexico and would thereby further diminish the ability of North American car manufacturers to retain market share.

During the first Trump administration, the Trudeau government kept a cool head, drove a hard bargain and came out better than most observers had dared to hope. It is dispiriting that, this time around, some Canadian politicians seem to have lost the courage of their convictions before Mr. Trump has even moved into the White House.