Navigating US-Canada Trade Uncertainty: Strategic Opportunities in Energy and Diversification

The U.S.-Canada trade relationship has long been a cornerstone of North American economic integration, but recent tensions under President Donald Trump's 2025 trade war have forced Canada to rethink its economic strategy. With unilateral 35% tariffs on non-USMCA-compliant goods and a volatile political climate, Canada has pivoted toward Mexico as a strategic partner. This shift, coupled with a renewed focus on energy self-reliance, is creating undervalued investment opportunities in cross-border infrastructure and energy sectors. For investors, the key lies in understanding how Canada's recalibration of its trade and energy policies is reshaping the continent's economic landscape.

The USMCA Framework and Trade Tensions: A Catalyst for Diversification

The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020, remains the bedrock of North American trade. However, the 2025 trade war has exposed vulnerabilities in Canada's overreliance on the U.S. market. When Trump imposed tariffs on Canadian goods, Mexico was granted a 90-day reprieve to negotiate, while Canada faced immediate retaliatory measures. This asymmetry has accelerated Canada's efforts to deepen ties with Mexico, particularly in energy and infrastructure.

Canada's Prime Minister Mark Carney has prioritized Mexico as a counterbalance, dispatching high-level officials like Foreign Affairs Minister Anita Anand and Finance Minister François-Philippe Champagne to Mexico City. These efforts are not just diplomatic but economic: Canada aims to leverage Mexico's growing consumer base, competitive labor force, and strategic location to diversify its trade networks. The Canada-Mexico Action Plan, announced in 2023, underscores this commitment, focusing on supply chain resilience, energy security, and digital trade.

Energy Self-Reliance: A New Frontier for Canadian Investors

Canada's energy sector has long been a double-edged sword. While the country is a global energy superpower, its infrastructure has lagged behind U.S. counterparts. François Poirier, CEO of TC Energy, recently noted that “risk-adjusted returns in the U.S. are meaningfully higher than in Canada,” highlighting regulatory and policy uncertainties in Canada. However, the current administration is pushing to reverse this trend through projects like the Trans Mountain pipeline expansion and the LNG Canada terminal.

The Trans Mountain expansion, now operational, is a critical step in diversifying Canada's oil exports beyond the U.S. Meanwhile, the LNG Canada project—set to become one of the world's largest LNG facilities—positions Canada to capitalize on Asia's growing demand for cleaner energy. These projects are not just about domestic growth; they are part of a broader strategy to integrate with Mexico's energy infrastructure. For example, Canadian energy firms are exploring partnerships with Mexican companies to develop cross-border pipelines and LNG terminals, creating a North American energy corridor.

Mexico, too, is emerging as a key player. U.S.-based midstream giant ONEOK is expanding its Permian Basin operations to connect with Mexican pipelines, feeding an LNG production facility on the West Coast. This project exemplifies how cross-border energy infrastructure can unlock stranded gas and create new revenue streams.

Cross-Border Infrastructure: Undervalued Opportunities in Pipelines and Ports

Beyond energy, Canada and Mexico are collaborating on infrastructure projects that could redefine North American trade. The Canada-Mexico Action Plan emphasizes port-to-port trade, digital trade corridors, and supply chain resilience. For instance, investments in Mexican ports like Manzanillo and Lázaro Cárdenas are being paired with Canadian logistics hubs to streamline cross-border trade. These projects are particularly attractive for investors seeking exposure to infrastructure-as-a-service (IaaS) models, where recurring revenue streams from tolls and logistics fees offer stable returns.

Another overlooked area is the integration of renewable energy infrastructure. Canada's expertise in hydroelectric power and Mexico's solar and wind potential create opportunities for joint ventures in clean energy. For example, Canadian pension funds like the “Maple 8” are exploring investments in Mexican solar farms and battery storage facilities, aligning with global decarbonization trends.

Strategic Investment Advice: Where to Focus in 2025

For investors, the key is to identify sectors where Canada's strategic shift intersects with Mexico's growth potential. Here are three actionable insights:

1. Energy Infrastructure: Prioritize companies involved in LNG and pipeline projects, such as TC Energy and Enbridge. These firms are central to Canada's energy diversification strategy and stand to benefit from increased cross-border collaboration.
2. Midstream Energy: Mexican and U.S. midstream firms like ONEOK and Grupo Carso are expanding into Mexico's energy market. These companies offer exposure to North America's evolving energy corridors.
3. Infrastructure Funds: Consider Canadian infrastructure ETFs or private equity funds focused on cross-border projects. These vehicles provide diversified access to ports, pipelines, and renewable energy assets.

Conclusion: A Resilient Future for North American Trade

Canada's pivot to Mexico is not just a response to U.S. trade tensions—it's a strategic repositioning for long-term economic resilience. By investing in energy self-reliance and cross-border infrastructure, Canada is creating a more diversified and secure trade network. For investors, this shift opens doors to undervalued opportunities in sectors poised for growth. As the USMCA review looms and North American energy integration accelerates, the time to act is now.

In an era of geopolitical uncertainty, the Canada-Mexico partnership offers a blueprint for stability—and a compelling investment thesis for those willing to look beyond the headlines.