How a Mexico-U.S. trade deal could set the terms for Canada

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As for what Mexico and the U.S. could hash out bilaterally, there are a number of issues, but trade experts believe it will largely focus on immediate issues while laying a path for continued talks on tougher debates.

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“I think there’s a lot that bilaterally can be addressed without Canada,” said Inu Manak, senior fellow at the Peterson Institute for International Economics, pointing to energy investments and reform in Mexico, labour reform and enforcement, including collective bargaining rights, Mexico’s external trade policies, and some agricultural disputes over seasonal produce.

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Still, the bilateral bargains are closely tied to CUSMA’s future, as Washington is using the prospect of renewal to press for settlements on other trade disputes, according to Christopher Sands, director of the Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington.

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“The way that the Trump administration has taken this, the review, as you know from last year, is to hold the renewal of the agreement hostage until other trade issues are resolved,” he said.

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One possible development that could really impact Canada, trade watchers say, is an agreement on sectoral tariffs. Any settlement by Mexico on the Section 232 tariffs, Marroquín Bitar warned, could become Canada’s benchmark.

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“Whatever Mexico accepts in this interim deal will very likely become the floor rather than the ceiling for whatever Canada negotiates when it eventually returns to the table,” he said. “Every Mexican concession becomes the opening term of Canada’s negotiations.”

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Manak largely agreed and pointed to the automotive industry.

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“So let’s say Mexico can negotiate down … from the 25 per cent … auto or auto parts tariff, a tariff at 15 per cent or lower, for example … that would be something that would create … a baseline even for Canada,” she said.

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Alfredo Carrillo Obregon, a trade policy analyst at the Cato Institute in Washington, also expressed concern over this, noting that the U.S. is unlikely to agree to a better deal for Canada later.

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“If Mexico agrees to it, I find it difficult to believe that the Trump administration would … be open to being flexible when it comes to Canada specifically,” he said.

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Even if Canada’s formal talks remain on hold, Sands says closer Canada–Mexico ties could help Ottawa stay informed about Washington’s demands.

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“What we will have now that we didn’t have reliably before is … a Mexico-Canada dialogue where I’m sure they’ll pick up the phone and say, ‘Hey, this is what the Americans are asking us to … sign, and here’s where we’re trying to modify it,’” Sands said.

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And while this approach may not stop Washington from using a “divide and conquer” approach, Sands said he thinks the “Mexicans are … trying anyway to be much better partners.”

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“They may be forced to do a bilateral on security, or just a U.S.-Mexico agreement on some aspect, but I think they want to keep the band together.”

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Changes to CUSMA itself, however, require agreement among all three countries.

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“Any changes to the agreement would need the concurrence of all three parties,” said Dade.

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Marroquín Bitar said any deal the U.S. and Mexico might strike this autumn would leave broader trilateral issues — including rules of origin — for the next phase.

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He referred to this as merely the beginning of a “15-round fight.”