Trade relations between Canada and Mexico becoming more robust in the face of potential US tariff confrontations
Following the imposition of tariffs by former President Trump in early 2025, trade negotiations between Canada, Mexico, and the United States have been ongoing but remain at an impasse as of August 2025.
Trump began by imposing 25% tariffs on all Canadian and Mexican goods, with higher tariffs on some energy exports, and threatened additional tariff hikes if no deal was reached. By July 31, 2025, tariffs on Canadian goods were increased further to 35% after a failure to reach a new agreement.
Bilateral trade talks led by U.S. agencies have made some progress, with updates as recent as late July 2025 indicating ongoing discussion with both Canada and Mexico. However, no substantive agreement has been announced publicly, and tensions remain high with risk of recession in both Canada and Mexico due to sustained tariffs.
In response to the U.S. tariff situation and trade uncertainty, Canada and Mexico have been developing plans to enhance direct trade between themselves to bypass U.S. tariffs and transshipment taxes, signaling a move to reduce reliance on the U.S. route.
Analysts suggest that Canada's outreach reflects a need for continental coordination ahead of next year's USMCA review. Prime Minister Mark Carney dispatched his top diplomat and finance minister to Mexico City for discussions with Mexican President Claudia Sheinbaum and key officials.
The discussions focused on infrastructure investments in ports and railways to facilitate trade. Tensions emerged between Canada and Mexico last year over concerns about countering Chinese trade threats.
Mexico remains Canada's third-largest trading partner, with bilateral trade exceeding $49 billion in 2023. Trump granted Mexico a temporary 90-day exemption from tariffs, but the tariffs on Mexico, Canada, and China were moved forward by Trump, specifically over fentanyl concerns.
It is worth noting that Mexico was excluded from the new US tariffs, a fact celebrated by Mexico according to a report by 'Global Logistics'. Some caution against overt displays of alliance-building to avoid provoking US protectionism.
Additional U.S. tariff measures including investigations into critical minerals and heavy trucks may further complicate negotiations. As of mid-August 2025, tariffs remain elevated and even increased on Canadian goods, negotiations continue but no deal or USMCA review resolution has been reached publicly, Canada and Mexico are pursuing closer trade ties to mitigate U.S. tariff effects, and the outlook is tense, with potential recession risks if tariffs persist.
The ongoing trade negotiations between Canada, Mexico, and the United States, initiated by former President Trump in early 2025, have been influenced by the politics of global trade and finance, as high tariffs imposed on Canadian and Mexican goods have caused tension and risk of recession. In response, Canada and Mexico are seeking to enhance direct trade, thereby diversifying their business relationships and reducing reliance on the U.S. route. This strategic decision in the face of American tariffs has been analyzed as a precursor to continental coordination ahead of the USMCA review.
