Canada and Mexico Gambled on a Free Trade Future. The Bet Is Turning Sour.

As an experienced financial analyst, I've been closely following the trade dynamics between Canada, Mexico, and the United States since the signing of the United States-Mexico-Canada Agreement (USMCA) in 2018. The initial optimism surrounding the USMCA was palpable, with many expecting it to boost economic growth, create jobs, and strengthen the middle class in all three countries. However, as time has passed, it has become increasingly clear that the bet on a free trade future is turning sour for Canada and Mexico.



The USMCA, which replaced the North American Free Trade Agreement (NAFTA), was supposed to create a more balanced, reciprocal trade supporting high-paying jobs for Americans and grow the North American economy. However, the agreement has faced numerous challenges and setbacks, many of which have been exacerbated by broader geopolitical factors.

One of the most significant issues has been the U.S. steel and aluminum tariffs, which were imposed on Canada and Mexico in 2018 and have remained in place despite the USMCA. These tariffs are antithetical to free trade and have had a detrimental impact on the economies of all three countries. The U.S. has also maintained a 25% tariff on Canadian and Mexican steel shipments and a 10% tariff on aluminum, further straining the trade relationship.

Another challenge has been the slow implementation of the USMCA's labor and environmental provisions. While the agreement includes modest enhancements to these areas compared to NAFTA, the pace of implementation has been sluggish, and enforcement has been inconsistent. This has led to concerns about the agreement's effectiveness in addressing labor rights and environmental protections.

The USMCA's dairy market access provisions have also been a source of contention, particularly for Canadian dairy farmers. The agreement offers U.S. farmers greater access to the Canadian dairy market, which has led to increased competition for Canadian dairy farmers and may ultimately result in lower grocery prices for consumers. However, this has also created discontent among Canadian dairy farmers, who feel that their industry has been used as a bargaining chip to satisfy U.S. President Donald Trump's demands.



The USMCA's automotive rules of origin have also presented challenges, particularly for the Mexican automotive industry. The agreement requires a higher percentage of car parts to be manufactured within North America and mandates that a portion of these parts be made by workers earning at least $16 per hour. While this has encouraged more North American car production, it has also led to increased investment in Mexico's automotive sector, which has been criticized for not prioritizing labor reforms and worker protections.



In conclusion, the bet on a free trade future that Canada and Mexico made with the USMCA is turning sour. The agreement has faced numerous challenges, including U.S. steel and aluminum tariffs, slow implementation of labor and environmental provisions, and contentious dairy market access provisions. Broader geopolitical factors, such as trade tensions and protectionism, have also influenced the agreement and the trade dynamics between the three countries. To address these challenges and ensure the long-term success of the USMCA, Canada, Mexico, and the United States must work together to implement the agreement's provisions, address labor and environmental concerns, and foster a more balanced and reciprocal trade relationship.