Ottawa considering cutting Mexico out of trade pact with U.S.
Canada is not ruling out sidelining Mexico in future trade talks with the United States, with Deputy Prime Minister Chrystia Freeland saying the federal government shares Donald Trump’s “grave concerns” that China is using the southernmost North American country as a back door for trade access.
Ottawa’s priority is the bilateral relationship with the United States, Ms. Freeland said. “At heart for us is the Canada-U.S. partnership,” she said.
The federal government’s decision to closely align itself with the incoming Republican administration coincided with the announcement that Howard Lutnick would serve as Mr. Trump’s commerce secretary, in charge of his “tariff and trade agenda.” Mr. Lutnick would also have the additional responsibility of the Office of the United States Trade Representative.
Typically, the trade and commerce roles have been separate. Details of how the combined roles would work in practice were not immediately shared – for example, whether the cabinet role of trade representative will now report to the commerce secretary instead of directly to the President.
The 63-year-old Mr. Lutnick was a major campaign donor for Mr. Trump and as transition co-chair has been a key player in shaping the new administration. He is also the chairman and CEO of Cantor Fitzgerald, a financial services firm.
To rebuild the U.S. manufacturing base, Mr. Trump has vowed to impose new tariffs of at least 60 per cent on Chinese imports and 10 per cent to 20 per cent on goods from other countries. He has also pledged to renegotiate the U.S.-Mexico-Canada Agreement, which he struck under his first administration.
Mr. Lutnick has endorsed Mr. Trump’s promise of high trade barriers, from which Canada will be pushing hard to be excluded.
So far, the Trump team has not said whether it will grant Canada or anyone else exemptions from the promised tariffs. The North American trade pact comes up for review in 2026 and Mr. Trump has said the renegotiation should put particular emphasis on Mexican auto jobs and the shipment of Chinese goods to the U.S. through Mexico.
Ontario Premier Doug Ford was the first to advocate for a bilateral deal last week, and in a series of comments since then, Mr. Trudeau and his senior ministers have been careful not to rule it out.
Ms. Freeland argued Tuesday that Canada is “more aligned today than ever” with the U.S. when it comes to China’s trade practices and she noted that on electric vehicle, steel and aluminum tariffs, Canada is “perfectly aligned with the United States,” meaning it is not a back door to Chinese goods.
“The same cannot be said of Mexico,” she added, saying that she has been in touch with Joe Biden’s administration and advisers of Mr. Trump, both of whom have “very grave concerns” that Mexico is “serving as a back door for China into the North American trading space.”
“I believe those concerns are legitimate,” she said.
Mr. Trudeau has named Ms. Freeland to lead a revived cabinet committee on Canada-U.S. relations as the government prepares for Mr. Trump’s presidential comeback.
American policy makers have become increasingly concerned about investment by Chinese automakers in Mexico, given that country’s tariff-free access to the United States, as well as Chinese state-owned companies setting up shop in Mexico and then benefiting from the existing trade pact.
While Mr. Trudeau has said his ideal and preferred scenario is for a three-way trade deal, on Tuesday he also emphasized that his government will prioritize Canada’s interests.
The approach taken by Mr. Trudeau’s government is markedly different from the tack they took in Mr. Trump’s first administration, said Andrea van Vugt, who served as foreign affairs and trade adviser to former prime minister Stephen Harper.
During the first round of trade negotiations, Canada aligned itself with Mexico in an attempt to bolster its position at the negotiating table with the White House. But Ms. van Vugt said that was poorly received by the Trump administration and Canada is now prioritizing alignment with its primary trading partner.
“I think it’s a demonstration that they have learned a lot about how to work with the Trump administration,” said Ms. van Vugt, who is now the chief operating officer of Wellington Advocacy.
Still, she said while Ottawa is publicly positioning itself with Mr. Trump, it remains unclear what the substantive impact will be and cautioned that there are practical considerations that make segregating the trade relationships very difficult. For example, she pointed to the challenge of untangling supply chains that have been built up between the three countries under a single trade deal.
Ms. van Vugt added that Canada and Mexico could be contending with a more powerful negotiating partner in the U.S. administration because Mr. Lutnick’s combined role of commerce and trade bolsters his position. It suggests Mr. Trump’s team has learned from its previous experience in office, she said.
Mr. Lutnick will have to be confirmed by the Republican-controlled Senate before taking office.
During the campaign, Mr. Lutnick disparaged the earlier North American trade pact that was in place before it was renegotiated during Mr. Trump’s first term. Mr. Lutnick also argued that America was better off more than a century ago when “we had no income tax, and all we had was tariffs.”
In a CNBC interview before the election, he said “I think we should put tariffs on stuff we make and not put tariffs on stuff we don’t make.”
However, he also framed tariffs in more tactical terms: as a way to get other countries to lower their own trade barriers. “Of course it’s a bargaining chip,” he said. If the U.S. imposes tariffs on other countries, “they’re going to come and negotiate and their tariffs are going to come down.”
Mr. Lutnick first came to public prominence after Sept. 11, 2001, when most of his company’s employees, who were headquartered in the World Trade Center, died that day in the attack. One of Mr. Lutnick’s brothers, Gary, was among them.
This article was first reported by Reuters
