President-elect Trump’s promise to put tariffs on Mexico and Canada threatens to derail decades of North American integration, a rocky process that has remade the two U.S. neighbors as suppliers of raw and finished commodities to the world’s largest economy.
In some ways, Canada and Mexico have switched places during the last three decades.
Prior to the North American Free Trade Agreement (NAFTA), Mexico was a middle-tier petrostate with no competitive manufacturing base. Now, its economy is primarily dependent on manufacturing, tourism, agricultural exports, and money brought home by Mexicans living abroad.
Meanwhile, Canada transformed from a tiny but advanced manufacturing economy to an oil and gas powerhouse, exporting vast amounts of hydrocarbons to the United States.
Both of these shifts have occurred to fit neatly into the greater needs of the United States economy.
However, that three-way integration is encountering headwinds, not least from Trump, who threatened United States-Mexico-Canada Agreement (USMCA) partners with 25% across-the-board tariffs on the first day of his presidency in retaliation for their participation in migration and the illegal fentanyl trade.
“Both Mexico and Canada have the utmost right and power to easily resolve this long-standing issue. We hereby demand that they exercise this power, and until that happens, they will have to pay a high price!” Trump posted on Truth Social.
The basics of the continent’s manufacturing base are at jeopardy, in addition to the harmony of North American diplomatic ties.
“The value chains—the value chains have been designed around the context of integration,” said Ildefonso Guajardo, Mexico’s former secretary of the economy and key negotiator on the USMCA.
Value chains, or supply chains, which produce and assemble parts across the continent before incorporating them into a finished product, have emerged as a crucial competitive advantage for North American industry as a whole, as well as the raison d’être for a large portion of Mexican business.
These networks can only exist in Mexico because of significant infrastructure investments, which include road and rail links, gas pipelines, and industrial parks spanning roughly 10,000 acres.
