WASHINGTON, D.C. — In a surprising turn of events, Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum are joining forces to address challenges posed by U.S. trade policies. Their collaboration comes as they prepare for the upcoming renegotiation of the Canada-U.S.-Mexico Agreement (CUSMA). Last week, the two leaders met in Mexico City to enhance their economic and security partnerships, aiming to solidify their positions before negotiations begin next summer.

Both Carney and Sheinbaum are concerned about the potential disruptions from the White House's demands during the trade talks. Carney expressed confidence in their ability to adapt, stating, "I have full confidence, and so does the president (Sheinbaum), that we can find the adjustments needed to reinforce competition and competitiveness in our region." The leaders also plan to share intelligence on cross-border criminal organizations and improve border security, particularly in response to the fentanyl crisis.

The U.S. has imposed significant tariffs on non-CUSMA-compliant exports, including a 35% tariff on Canadian goods and a 25% tariff on Mexican products. Additionally, the Trump administration has utilized Section 232 tariffs, citing national security concerns, to impose sanctions on steel and aluminum, with rates reaching as high as 50%. These tariffs have faced legal challenges, and the Supreme Court is set to review the case in November. However, the U.S. administration is expected to expand its use of Section 232 tariffs in various sectors, including semiconductors and pharmaceuticals, which could further complicate CUSMA.

Trade experts believe that the cooperation between Canada and Mexico could enhance their negotiating power. Wendy Cutler, a former trade negotiator, noted that the U.S. likely sees itself as having the upper hand but added, "It could give (Canada and Mexico) more leverage vis-a-vis the U.S. if they remain united." However, she cautioned that disunity could lead to the U.S. playing the two countries against each other, as seen in previous negotiations.

Experts emphasize the importance of understanding each other's priorities rather than seeking complete unity. Jeff Schott from the Peterson Institute for International Economics stated that the Canada-Mexico pact is designed for cooperation in key areas. He highlighted the need for both countries to work effectively with the U.S. to maintain the benefits of North American integration.

Despite the potential advantages of their partnership, some experts warn that it could provoke a negative response from the U.S. Clark Packard from the Cato Institute remarked, "I do think (the pact) probably bothers the U.S. But ultimately, this wouldn’t have happened if the U.S. had just abided by the terms and spirit of cooperation under (CUSMA)."

As the three countries prepare for the CUSMA review, public consultations are underway, with anticipated debates over several contentious issues. Experts expect the U.S. to advocate for stricter rules of origin, particularly in the automotive sector, and to impose more stringent screening of Chinese investments. Cutler expressed concern that if the U.S. pressures Canada and Mexico for preferential treatment, it could complicate negotiations.

The automotive rules of origin are expected to be a significant point of contention, as tightening these regulations could increase costs for producers. Schott warned that stricter rules could impose financial pressures that manufacturers may struggle to absorb. Additionally, issues surrounding lumber, agriculture, and dairy are likely to arise, with Carney facing challenges in negotiating dairy quotas due to domestic political pressures.

Looking ahead, the midterm elections in the U.S. could influence the negotiations. As Congress seeks to secure support from constituents, there may be increased scrutiny of tariffs and trade policies that impact voters. Cutler noted that Congress will play a more active role in the CUSMA negotiations, unlike in previous tariff discussions.

While progress on U.S.-Canada trade negotiations has stalled recently, experts anticipate that these discussions will merge into the CUSMA review next year. However, the path forward remains uncertain. Packard warned that negotiations could be lengthy and fraught, while Schott suggested that the timing may depend on the outcomes of the midterm elections.

As the situation evolves, both Canada and Mexico are preparing for a challenging negotiation process, with the potential for significant implications for North American trade.