“We are a gentle, angry people,” declares the song Stronger Together, by famed Mexican composer Enrique Dunn. The piece, which highlights the power of unity, resilience and collective strength to overcome challenges and achieve common goals, could well be applied to the current predicament facing Canada and Mexico.
Our two countries have been solid allies and good friends since 1944. And, in 1994, following the signing of the North American Free Trade Agreement (NAFTA), we became true strategic partners, sharing a vibrant, multi-faceted relationship characterized by deep people-to-people ties, rich cultural connections and growing trade and investment flows.
Navigating the challenges of CUSMA and global protectionism
But almost five years after the coming into force of the retrofitted Canada-United States-Mexico Agreement (CUSMA), we face common trade challenges from our shared treaty partner. In addition to tariffs of 25% targeting Canada and Mexico, tariffs on steel and aluminum will also weigh heavily on trade. And with the CUSMA set for review in an environment of heightened global protectionism, the time is now for Mexico and Canada to reaffirm and strengthen our bilateral trade and investment ties.
Given the relative size of our economies, the U.S. has typically served as the main trade hub for our trio, and trade between Canada and Mexico has historically played second fiddle. While the U.S. accounts for roughly 70% of Canada’s two-way merchandise trade, only 3% is attributed to Mexico. Similarly, for Mexico, around 60% of its overall merchandise trade is accounted for by the U.S.
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Strengthening Canada-Mexico trade and investment
But in light of the logistical advantages offered by our geographic proximity, and the benefits of a free trade agreement that’s served as a global example of regional co-operation and trade liberalization, Mexico and Canada can do more to strengthen merchandise trade. There are many products, for example, that Mexico imports through China, which can easily be sourced from Canada, and vice versa. Of the US$114 billion worth of products that Mexico imports from China, Canada exports about US$4.8 billion worth of comparable products to China, including autos and parts.
The automotive sector is a key contributor to Canada-Mexico trade, with Mexico ranking as Canada’s second-largest automotive export market (after the U.S.). Motor vehicle parts and accessories and motor vehicles for passenger transport are Canada’s Top 2 export products to Mexico, accounting for a combined 20% share of Canada’s total merchandise exports to the country.
And demand goes both ways. In Canada, motor vehicles for passenger transport, motor vehicles for goods transport, motor vehicle parts and accessories, and certain types of tractors are among our Top 5 product imports from Mexico, accounting for 37% of Canada’s total merchandise imports from our southern partner.
Unlocking investment opportunities in Mexico for Canadian companies
Beyond trade, Mexico could also benefit from Canadian investment, and skills and technology transfers in mining, energy, infrastructure, pharmaceuticals, aerospace, and chemicals. This could be enormously impactful for Mexico, where lacklustre foreign direct investment inflows have constrained economic potential. In fact, Mexico’s level of real gross domestic product (GDP) is roughly 5.5% below where it would be, had the economy kept the same pace of growth as it had under former president Enrique Peña Nieto’s economic liberalization reforms.
The Mining Committee of the Canadian Chamber of Commerce in Mexico estimates that about US$3.5 billion worth of investments in Canadian mining projects in Mexico remain stalled by regulatory constraints. This represents significant opportunities for the Mexican economy.
Canada is already the third-largest foreign direct investor in Mexico, and strengthening co-operation between our two countries could help Mexico tap into the investments needed to support President Claudia Sheinbaum’s Plan México agenda.
Plan México is the government’s ambitious economic plan to grow its economy from the world’s 12th-largest to 10th largest, creating 1.5 million jobs by 2030. The plan also includes reducing Mexico’s import reliance on China and other Asian countries and boosting domestic and North American production.
The bottom line: Enhancing Canada-Mexico economic integration
Increased global protectionism and heightened uncertainty in North American trade is an historic opportunity for Canada and Mexico to further enhance our strategic co-operation and deepen our economic integration in a way that benefits both countries.
Canada can help make Plan México a reality, expanding bilateral trade, unlocking foreign direct investment, and transferring skills and technology to help boost production in key sectors. As Mexico succeeds, so, too, will Canada. Strengthening bilateral trade and investment can open new, previously unexplored opportunities for Canadian exporters and investors. Export Development Canada has representation throughout Latin America, including offices in Mexico City and Monterrey, to support Canadian businesses looking to expand trade and investment activities. Seamos más fuertes juntos.
This week, a very special thanks to Prince Owusu, senior economist at EDC Economics. As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.
