MNI POLICY: Canada Fears US Reaction To Mexico-China Auto Ties

Canadian officials are concerned growing China auto exports to Mexico will prompt the U.S. to force a harsh re-drawing of North America’s free trade agreement.

The USMCA trade pact replaced Nafta after difficult talks with Donald Trump’s administration and includes a requirement for the agreement to be revisited in 2026. Auto content rules were a key sticking point last time and Canada remains vulnerable to any new U.S. clampdown. Three-quarters of Canada's exports go to the U.S. and its large auto industry relies on seamless movement of parts across the Michigan-Ontario border.

Automotive Parts Manufacturers' Association President Flavio Volpe urged lawmakers to consider matching U.S. tariffs on Chinese electric vehicles at a June 6 hearing to avoid any retaliation against back-door access. Montreal-Based National Bank Financial analysts wrote in a June 6 report that “in an effort to avoid American tariffs, China is rerouting goods through intermediary countries” including autos via Mexico, and “because Canada has extremely low import tariffs on Chinese EVs (about 6%), it could see more of these vehicles diverted its way.”

Prime Minister Justin Trudeau’s office said earlier this month that he and Mexico’s new President Claudia Sheinbaum “committed to working closely to strengthen North American competitiveness”, according to a summary of their call.

Trade flows across the Canadian-U.S. borders total about CAD3.3 billion each day, according to the federal trade bank, though Canada has been losing market share to Mexico and China in recent years. Another round of friction with the U.S. would worsen Canada's long run of weak business spending, according to Conference Board of Canada chief economist Pedro Antunes. “It’s not just the exports -- it’s where the capacity is being put in place, and we’re lacking very much on that front,” he said. (See MNI INTERVIEW: Canada's Investment Slump Is Beyond Intangible)