President Donald Trump's chaotic back and forth on hefty tariffs for Mexico and Canada could weaken progress in bringing manufacturing back to North America and building resilience in the critical mineral supply chain -- areas currently dominated by China.
That's according to experts speaking during the Brookings Institution's event on the future of the United States-Mexico-Canada Agreement (USMCA), a trade agreement that went into effect in 2020 during Trump's first administration. The USMCA was set to be reviewed by the three countries in 2026. However, Trump's recent implementation and then delay of 25% tariffs on goods from Mexico and Canada until April 2 will likely advance USMCA negotiations to 2025. The Trump administration noted additional tariff exemptions on Thursday, including for "goods from Canada and Mexico that claim and qualify for USMCA preference."
The USMCA replaced the North American Free Trade Agreement and served as a "mutually beneficial win for North American workers, farmers, ranchers and businesses." It added protections for U.S. intellectual property, focused on digital trade and regulatory practices and included a chapter on benefitting SMBs. While the USMCA could be improved to address Trump's national security concerns, it's an adaptable trade framework, said Brahima Sangafowa Coulibaly, vice president and director of global economy and development at Brookings.
"The latest challenge is the unilateral tariffs imposed by the Trump administration on Canada and Mexico, which are inconsistent with the agreement and do not bode well for regional cooperation," he said during the Brookings event.
Trump's willingness to impose tariffs on the country's largest trading partners sends a signal to others that they should reconsider their trade exposure to the U.S. That could translate into "being more open to expanding trade and investment relations with other countries, as well as China," said Joshua Meltzer, a senior fellow in global economy and development at Brookings.
Instead of targeting allies with additional tariffs, updating the USMCA could deepen cooperation between the U.S., Mexico and Canada to strengthen domestic manufacturing and competition with China, Meltzer said.
The one country that will be a winner from a trade war between the U.S., Canada and Mexico will be China.
Joshua MeltzerSenior fellow, global economy and development, Brookings Institution
"The one country that will be a winner from a trade war between the U.S., Canada and Mexico will be China," he said.
Impact of Trump's tariffs on USMCA
The scope and size of the 25% tariffs on Canada and Mexico are unprecedented and "far outweighs any of the tariffs Trump put on China" during his first term in office, Meltzer said. Trump has added an additional 10% tariff to Chinese goods, increasing the total tariffs to 20%.
Meltzer added that such tariffs could contract U.S. automotive and manufactured product exports to Canada by 60%. Lumber, metal, computer and electronic equipment exports from the U.S. to Mexico could shrink by up to 80%, he said.
"It's clear that when you think about the structure of the economic relationship -- the role supply chains play, that 25% tariffs on goods moving across borders multiple times to produce autos, electronic products and other goods adds up very quickly and makes entire industries uneconomical," he said.
Bentley Allan, associate professor of political science at Johns Hopkins University, agreed that tariffs would significantly affect products and critical minerals that cross the border.
A zinc mine in Alaska, for example, flies the mined mineral to British Columbia, where it's refined in a smelter. The byproduct of that process is germanium, which is shipped back to the U.S. and used in semiconductors, he said. That semiconductor will likely be shipped back to Canada as an electronic product or as a regular chip, facing tariffs at every border crossing.
China has placed gallium and germanium on the export control list for the U.S. in retaliation for Biden-era export controls, making the ability to source such minerals from countries like Canada crucial, Allan said.
"If we really wanted to get serious about China, we need to understand the market power China has," he said during the event. "China has concentrated control of a number of these minerals, which means it can effectively set prices in the global market."
Allan said an international, collaborative approach is essential to reducing risk from China's control over markets for critical minerals and building "innovative industries that will help our economies for decades."
Benefits of the USMCA
Leila Aridi Afas, director of global public policy at Toyota, said the automotive company serves as a "true USMCA success story." The trade agreement helped facilitate a smooth working relationship for the company across all three borders.
"We bring in parts and components from suppliers based in Mexico to build engines in West Virginia," Afas said during the Brookings event. "They go to Canada, where they're built into products such as the Rav4, which is then imported into the U.S."
Beyond strengthening automotive manufacturing ties, Brookings' Meltzer said the U.S., Canada and Mexico can use the USMCA to support goals outlined in the U.S. CHIPS and Science Act, including building an AI workforce, investing in AI technology and aligning on AI regulation.
Daniela Rojas, senior program officer at the Eon Institute, said AI could serve as a "key element" in future USMCA negotiations and competition with China. She said the USMCA's digital trade chapters already focus on reducing trade barriers and fostering innovation-friendly policies between the U.S., Canada and Mexico.
"China has a lot of advancements around AI, models such as DeepSeek and chip optimizations," she said. "This context has put into perspective that maybe a solution could be to coordinate a response from all of North America to help confront this force. The USMCA already laid the groundwork for that."
Victor Dodig, president and CEO of the Canadian Imperial Bank of Commerce, said trade facilitated by the USMCA in 2022 totaled $1.8 trillion, linking up to 17 million jobs between the three countries. He said it will be important for the U.S., Mexico and Canada to sit down and address U.S. national security concerns around issues such as fentanyl and illegal migration to ensure that the USMCA continues.
"I'm hopeful that the key players on all three sides can get to a reasonable approach so we don't do any unjust harm to our respective economies," he said.
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining Informa TechTarget, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
