Yahoo Finance Traumatized US Neighbors Gird for Possible Trump Second Term
(Bloomberg) -- Late last year, President Joe Biden’s administration was facing a border problem – and it wasn’t just on America’s frontier with Mexico.
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Thousands of Mexican citizens were taking advantage of visa-free travel to fly to Canada and then try to cross into the US by heading south.
Canadian Prime Minister Justin Trudeau came under pressure from American officials and local politicians to reinstate the visa requirements he ended in 2016. Critics wanted immediate action, but Trudeau’s government moved delicately, taking time to meet with Mexican President Andrés Manuel López Obrador’s administration and in February ultimately reimposing the demand for only about 40% of arrivals.
The careful maneuvering was more than just standard diplomacy. Senior officials in Trudeau’s government worried it would be terrible timing to start a fight with Mexico, according to people familiar with the matter. Within a year, their thinking went, Donald Trump could win another term in the White House, potentially reigniting a continent-wide battle over tariffs and trade. Canada and Mexico would need to present a united front.
In this case, Trudeau appears to have navigated the issue successfully, cutting down on arrivals without tanking relations with Mexico. But the far bigger challenge may still be to come.
As Americans head to the polls in November, concern is building in Ottawa and Mexico City that the next US administration may move to limit trade among the three countries that totaled some $1.5 trillion in goods last year. The United States-Mexico-Canada Agreement — the deal reached in 2018 to replace 1994’s North American Free Trade Agreement — is scheduled for a joint review in 2026, and there is growing speculation the US will push to renegotiate parts of it, especially rules for auto manufacturing and dairy.
Trudeau has launched a strategy geared toward recruiting US allies. He has sent senior Canadian politicians, diplomats and business leaders to meet with US chief executives, lawmakers and governors on the importance of trade, particularly for the automobile and energy industries.
Chinese investment in Mexico looms heavily over its relationship with the US, and since December, Mexico has been working on a framework for investment screening around national security to help alleviate American concerns. A particular concern is Chinese companies exporting cars from Mexico into the US. The two sides have met several times on the issues, according to a person familiar with the matter.
In both countries, the angst goes beyond Trump — it’s under Biden that the US has been clashing with Canada and Mexico on auto-parts rules. Just last month, Biden unveiled tariffs on about $18 billion of annual imports from China targeting electric vehicles, batteries, chips, solar cells, and critical minerals. That’s in addition to previous increases on steel and aluminum.
But Canadian and Mexican officials say trade negotiations would be vastly more volatile and unpredictable if Trump were at the helm.
Trump has vowed to impose 10% duties on goods from around the world if he wins in November, part of efforts to shore up US manufacturing jobs. He hasn’t explicitly said how that would apply to Canada and Mexico, but Canada’s ambassador to the US has warned about global retaliation.
“A second Trump term is going to be quite different” when it comes to trade, said Laura Dawson, executive director of the Future Borders Coalition, a binational group that promotes Canada-US trade. She said the “adult supervision” around Trump in his first term — people who were largely supportive of trade — are “few and far between now.”
In an attempt to line up allies on trade, Canadian officials such as Industry Minister Francois-Philippe Champagne travel frequently to the US. Those meetings have included chief executives at companies such as Coca-Cola Co., United Parcel Service Inc. and Goodyear Tire & Rubber Co., as well as Washington lawmakers.
In these visits, the Canadians emphasize their country is the top export destination for 35 states. They often travel beyond the Canada border regions to places such as Georgia, South Carolina and Nebraska to emphasize how crucial Canadian trade is to those states’ economies. After all, Canada buys about as much in goods from the US as China, France and Japan combined.
“When I look at people I say, ‘I hope you’re happy to see me because I’m your largest customer by far,’” Champagne said in an interview during a recent trip to New York.
Though Champagne stressed that he meets with a range of people, some are clearly Trump-related figures. That includes Gary Cohn, vice chairman at IBM Corp. and Trump’s former top economic adviser, as well as Republican state governors such as South Carolina’s Henry McMaster.
Canada’s US Ambassador Kirsten Hillman said officials have stayed in contact with people in Trump’s orbit over the past few years, targeting think tanks they believe would be influential if he wins a second term.
“We meet with them often,” Hillman said at an event with the Montreal Council on Foreign Relations. “Not just the management, but also the people who are writing the policies. My team and I, through the embassy, are in continual contact.”
In Mexico, officials working on behalf of President-elect Claudia Sheinbaum, an ally of López Obrador who has pledged continuity with his policies, are creating separate but similar plans for trade negotiations with Trump or Biden, according to a senior adviser. The country’s top exports include automobiles, chemicals and agriculture products, and the US and Mexico have clashed over rules for energy companies, as well as American corn exports.
The López Obrador administration has prepared a document called “Plan Mexico” that frames trade deficits with Asia are an opportunity to produce more in North America and work closer as a bloc. The analysis found that if 10% of Chinese imports were replaced with goods made in North America, it would boost economic growth and create demand for 600,000 more jobs in the US, 520,000 in Mexico and 260,000 in Canada.
Behind closed doors, Mexico’s biggest companies express concern that Trump would link the issues of trade and migration, as he did in May 2019 — when he threated tariffs if Mexico didn’t reduce the number of migrant arrivals at the US border — and as Biden has worked deliberately not to do, according to a Mexican official, who asked not to be identified to be able to speak about private conversations.
The US border saw record arrivals of undocumented people in the 2023 fiscal year, and although that has slowed in the past few months, there’s concern that trend could quickly reverse. This month, Biden announced new measures to block migrants from making asylum claims as part of efforts to limit crossings and fight the perception that the border is out of control.
Mexican officials also worry that Trump wants to use military force to attack the nation’s cartels, regardless of Mexico’s historical resistance to foreign troops operating on its soil, and that such actions could create more trade tensions.
There’s talk in Mexico about bringing back Marcelo Ebrard as a cabinet member. He flew to Washington in June 2019 to broker a deal with Trump to deploy Mexico’s national guard to stop migrants in exchange for Trump withdrawing his threat of tariffs on Mexican exports. Ebrard met personally with Trump several times in the first years of López Obrador’s administration.
Juan Ramon de la Fuente, who served as López Obrador’s ambassador to the United Nations and thus worked with the US State Department during the Trump years, is leading Sheinbaum’s transition. Like Ebrard, he could take a key post in her government.
At a recent event in Washington, Kenneth Smith Ramos, who was Mexico’s chief trade negotiator during the USMCA talks, spoke about concerns that reopening the agreement for review could result in new restrictions.
“Opening the USMCA is very dangerous given the political pressures, protectionist pressures that exist in all three countries and throughout the world,” he said, speaking on a panel organized by the Center for Strategic and International Studies.
--With assistance from Michael O'Boyle, Carolina Millan and Jay Zhao-Murray.
(Updates to include ‘Plan Mexico’ strategy in 19th paragraph)
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