As Donald Trump dismantles free trade, Canada and Mexico face an urgent choice: endure or pivot.
The once-aspirational vision of a mutually rewarding economic community in North America has disintegrated into a fevered orange nightmare. Although Donald Trump’s erratic behaviour keeps observers guessing, he appears determined to impose steep tariffs on imports from Canada and Mexico into the United States. In doing so, he is bringing to an end more than thirty years of regional free trade and inflicting a costly economic divorce on America’s two neighbours.
Since the 1990s, firms across the three North American economies have been able to access each other’s markets with little hindrance. That was the rationale behind the Canadian government’s decision to accept America’s invitation to negotiate a bilateral free trade agreement in the 1980s. Making its case for the deal, the Canadian Manufacturers’ Association declared in 1984 that “securing dependable and preferential access to the US market” was a top priority. Similarly, when negotiating the trilateral North American Free Trade Agreement (NAFTA) in the early 1990s, Mexico conceded considerable control over its economy in an attempt to secure freer passage into American markets.
Now, access to the US market is about as secure as an avocado in a guacamole factory. Meanwhile, Prime Minister Justin Trudeau has been left to declare that there is “not a snowball’s chance in hell” Canada would become the fifty-first state, contrary to Trump’s suggestion. It remains unclear how much economic pain Trump is prepared to inflict to achieve his goals, or how far he genuinely intends to reshape America’s relationships with its neighbours. Trudeau, however, has said he believes Trump may seriously contemplate annexing Canada.
It is well known that Trump never subscribed to the case for free trade, which held sway in Washington from the 1930s through to the 2010s. His hostility towards free trade in North America specifically is longstanding. He spoke disparagingly about it long before launching his presidential campaign, and in 2017, early in his first term, he came close to signing an executive order that would have withdrawn the United States from NAFTA altogether. He ultimately relented, opting instead to pursue a modest update to the agreement. His establishment-minded economic advisers, many closely tied to corporations thriving under NAFTA, managed to dilute the influence of nationalist hardliners led by Steve Bannon.
This time, however, appears different. Regardless of what Trump decides to do with the NAFTA successor agreement he negotiated—the United States-Mexico-Canada Agreement (USMCA)—free trade in North America is effectively dead.
Faced with Trump’s aggressive actions, the Canadian and Mexican governments have thus far responded with restraint, though both have introduced retaliatory tariffs and trade restrictions. Hoping that economic discomfort within the United States might force Trump or his allies to reconsider, they have targeted exporters in Republican-leaning states. Trump’s assessment of the economic costs could shift, particularly if stock markets plummet, but for now he appears genuinely convinced that tariffs carry no downside for Americans. Most economists would beg to differ.
The broader question confronting both Canada and Mexico is this: what is the point of NAFTA or USMCA if Trump can so easily unravel it? Is it time to acknowledge the death of North American free trade, abandon the dream of a better relationship with the United States, and seek new alliances further afield?
The Economist recently floated a provocative idea: Canada joining the European Union. While perhaps not entirely serious, the article made a compelling case that has sparked genuine curiosity. Why should Canada—and perhaps even Mexico—not align more closely with the EU? If full membership is far-fetched, might they at least pursue association with the European Economic Area, with its deep market integration and regulatory harmonisation? North America’s vast resources could make accession appealing to Europe. Mexico, at the very least, could seek a customs union akin to Turkey’s arrangement with the EU.
Of course, formidable obstacles remain. Lengthy negotiations and inevitable adjustment costs would be one thing; the Atlantic Ocean another. The west coasts of Canada and Mexico are more than 7,000 kilometres from Dublin, the nearest EU capital.
The idea is undoubtedly a stretch, particularly for Mexico, with its lower living standards and weaker governance. But the geographical challenge is less daunting than it first appears. Both Canada and Mexico are further from major Asian markets than they are from Europe. Trump’s actions, meanwhile, are rapidly rendering their only local large export market irrelevant. His imperialistic bullying, including threats towards Panama and Greenland, means officials in Ottawa and Mexico City must now consider the possibility of territorial aggression. If Trump were to make a move to annex one or more neighbours, the response would be critical. In that light, and with NATO’s collective-defence Article 5 appearing as toothless as NAFTA, the logic of a stronger alliance with Europe extends beyond trade to security.
Whatever path they choose, foreign policy officials in Ottawa and Mexico City would do well to acknowledge past miscalculations. By tying their economic fortunes so tightly to the United States, they gambled that dependency would never become as costly as it has now proved to be—precisely as some warned. Worse still, the gamble has yielded few economic gains. Canada and Mexico’s productivity gaps with the United States remain as wide as they were decades ago, back when free trade’s advocates promised convergence in productivity and living standards. Then, at least, there was still hope for a genuine economic community in North America.
Malcolm Fairbrother is a Professor at Uppsala University and a Researcher at the Institute for Futures Studies, Sweden. He is also an affiliated Professor and at the University of Graz, Austria, and author of Free Traders: Elites, Democracy, and the Rise of Globalization (Oxford University Press, 2019).
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Publish date : 2025-02-16 18:00:00
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