Canadians may be forgiven for focusing on their own problems as Donald Trump’s February 1 tariff deadline approaches. The U.S. president says he will impose 25 per cent tariffs on some or all Canadian and Mexican imports that day. Depending on how wide a net Trump casts, the result would be extremely damaging for both countries’ economies.
While the Canadian and Mexican governments may differ politically and ideologically, we share a common crisis under the new Trump administration that can be confronted more effectively by working together.
U.S.-Mexico trade by the numbers
In 2024, the U.S. imported more from Mexico than Canada, with US$632.2 billion in goods crossing the border compared to US$572.9 billion from Canada. Trade between the U.S. and Mexico, in particular, leaves much to unpack and offers some indications as to what a 25 per cent tariff might mean for consumers.
The top three U.S. imports from Mexico in 2022 were machinery and mechanical appliances (36.4 per cent); transportation equipment (24.9 per cent); and agricultural products (9.7 per cent). The first two categories are important, given how integrated manufacturing supply chains have become due to “nearshoring” and rising tariffs on Chinese products.
Regionally, about 50 per cent of U.S. trade with Canada and Mexico is driven by these supply chains in sectors ranging from automobiles to agriculture; with 46 per cent of Mexico’s manufacturing export value tied to trucks and automobiles. Many of these goods are intermediate, meaning they are used in the assembly of finished products. As they tend to cross the border multiple times throughout their production, consecutive 25 per cent tariffs on Mexican or Canadian-made intermediate goods are bound to lead to higher prices.
From the American standpoint, this occurred during the first wave of Trump tariffs in 2018. While some wage gains were made for U.S. workers, much of it was offset by higher consumer and producer expenses, translating into real wage decreases as high as three per cent in some areas. Despite the country’s posturing, American firms in Ohio or Michigan have as much to lose as those in Canada or Mexico.
Mexico also supplies 63 per cent of U.S. vegetable imports and 47 per cent of fruit and nut imports. Tariffs on these products will likely increase consumers’ costs and, as the 2018 example demonstrates, undermine any potential gains for American workers.
That said, Mexico’s trade relationship comes with vulnerabilities. Despite Trump’s attempt at framing the United States as the victim, the Mexican working class has paid the price of NAFTA and the CUSMA. The country’s path to industrialization has relied on exports and cheap labour, resulting in lower standards of living compared to its counterparts. While market integration has been framed as a net positive, in Mexico’s case, the result has been greater economic dependence and inconsistent growth.
The Mexico-U.S. and Canada trade is marred by inequality. Deepening ties render the country increasingly vulnerable to protectionist shocks, with estimates projecting that a 25 per cent tariff could shrink the Mexican GDP by two per cent.
Looking beyond general trade data, this relationship distinctly impacts the Mexican agricultural sector. Most fruit and vegetable production is for export, translating into higher domestic prices for the same products. Moreover, as of 2022, approximately 13 per cent of the Mexican population was employed in the sector. A sudden increase in tariffs could compound existing forms of inequality, contributing to higher unemployment and crises of affordability.
Mexico and Trump’s tariff threats
In the wake of rising geopolitical tension between China and the United States, Mexico finds itself in a unique position. In July 2024, the Mexican government aligned with former president Joe Biden’s imposition of 25 per cent steel and 10 per cent aluminum tariffs targeting Chinese firms operating in Mexico.
These developments, coupled with the country’s already disproportionately lower wages, could lure American firms looking for alternative markets, closer to home. In the long term, this could translate into greater investments in the Mexican economy. Should that be the case, there is a potential for further supply chain integration and, likely, greater risk under a high tariff regime.
In response, Mexican President Claudia Sheinbaum and Economy Minister Marcelo Ebrard have taken a measured approach, balancing firm rhetoric with U.S. appeasement.
In November of last year, Sheinbaum cautioned against the “mutually assured economic destruction” of tariffs, promising to retaliate if the U.S. follows through with its plan. Minister Ebrard has also highlighted the close economic relationship between the nations, especially in the auto sector, and the 400,000 U.S. jobs that would be at risk.
In terms of policy, Mexico has moved to allay U.S. concerns over migration and China. Between October and December 2024, President Sheinbaum’s government detained 475,000 migrants trying to cross into the United States, while also issuing new tariffs on clothing imports, targeting Chinese companies like Shein and Temu.
Tackling Trump: Mexican and Canadian responses
Regarding strategy, Mexico and Canada seem to be on divergent paths. Mexico has been more direct in addressing U.S. concerns while emphasizing what the country brings to the table economically. Officials have also noted that the U.S. could be hit with retaliatory tariffs depending on Trump’s actions.
Contrast this with Canada, which has offered a more fragmented response. In the absence of federal leadership, provincial leaders have been left to their own devices. Alberta Premier Danielle Smith, for instance, met with Donald Trump and has come out against retaliatory tariffs, while Ontario Premier Doug Ford has conducted U.S. media tours and threatened to cut energy exports.
In the short term, should Trump make good on his tariff threat, the likely response will be retaliatory tariffs, as implemented during the last Trump tariff spat in 2018. Some federal sources have stated that counter-tariffs could range from $37 to $110 billion depending on U.S. actions. The sectors this will target, and the inevitable impact on workers and consumers, remain to be seen.
In the long term, growing uncertainty will require comprehensive planning and the need to further diversify trade. President Sheinbaum has already taken steps to do so, unveiling a massive industrial policy to continentalize manufacturing and move away from Mexican dependence on Chinese inputs. Granted, much of this depends on the continuity of the CUSMA, which is set to be reviewed in 2026.
Alternatively, this could open the door to greater Mexican-Canadian solidarity and cooperation. Any retaliatory tariffs imposed could be done in collaboration as both countries maintain significant leverage over the U.S. as their main trading partners. To offset job losses and price increases, each country could look to the other to fill resource gaps.
In recent years, Mexico has received 32 per cent of its steel and 39 per cent of its aluminum from the United States. A greater partnership with Canada could help mitigate supply chain disruptions and stabilize costs. Furthermore, goods in transit cannot be hit with tariffs, so trade can continue across the U.S., regardless of Trump’s decisions. While this will not be a quick fix for Canadian exports in terms of volume, it presents both countries with an opportunity to move away from U.S. dependence.
That said, a 25 per cent tariff on goods imported from Mexico or Canada would significantly impact workers and consumers on both sides of the border. As countries look to cope with rising American protectionism, the two could find themselves likely allies in the years ahead.
