U.S. President Donald Trump’s promise of a five per cent tariff on Mexican imports could put the recently-negotiated Canada-United States-Mexico Agreement (CUSMA) at risk, and should give Canadian officials reason for pause, experts say.
Trump tweeted Thursday that on June 10 he will impose a five per cent tariff on all Mexican imports, which could increase incrementally to 25 per cent until the flow of migrants over the U.S. southern border stops.
U.S. imports from Mexico total USD$317 billion.
All three parties need to implement legislation in order for CUSMA to come into effect. Canada’s Foreign Affairs Minister Chrystia Freeland said Friday that Mexican officials intended to move ahead with the ratification process, and that the border dispute between Mexico and the United States does not involve Canada.
U.S. Vice President Mike Pence, meanwhile, spent Thursday with Trudeau, introducing legislation to have the trade deal implemented; Mexico has also taken steps to introduce similar legislation. Now, Trump’s actions have legislators concerned that CUSMA, after a rocky negotiation period, is once again in danger.
How does this impact the NAFTA 2.0?
First and foremost, the legislation introduced to implement the deal can’t come into effect in Canada until all three countries ratify it, University of Ottawa Faculty of Law professor Debra Steger told Global News.
WATCH: Foreign Minister Chrystia Freeland says they will wait until Mexico and the U.S. are ready to ratify CUSMA.
“The agreement will not come into effect until all three parties bring it into effect,” she explained. This requirement could lead to an extended delay should a trade conflict ensue between Mexico and the United States.
Furthermore, the threat of new tariffs will make it excessively difficult for Mexico to proceed with ratification, explained Janice Stein, founding director of the University of Toronto’s Munk School of Global Affairs and Public Policy.
“It will be very difficult for Mexico to proceed with ratification under the threat of these charges,” she continued. “For the president to unilaterally resort to tariffs on an immigration issue, that’s absolutely unprecedented.”
Along with already unfavourable views towards CUSMA in U.S. Congress, Stein is concerned that this latest move will further derail implementation.
“Currently, there’s no support among the Democrats in Congress to ratify it. Although it’s independent of the unilateral imposition of tariffs on Mexico, CUSMA was in trouble in Congress anyway,” Stein continued.
Unifor President Jerry Dias, had a similar take. “I don’t believe at all that the Democrats are going to let this thing go through.”
“But I believe this is more political than it is economics for the Democrats and frankly, same with Trump. He’s so unpredictable, you don’t know what he’s going to do next. If I’m Mexico, I’m saying there’s no way I’m ratifying this thing if Trump is going to start to slap tariffs on them.”
WATCH: White House says Mexico has not done enough on migration
Unifor represents the largest cohort of auto workers in Canada, an industry predicted to see serious impacts should these tariffs come into effect.
“I honestly believe that the Democrats are going to throw so many obstacles at it that it won’t be signed,” Dias said, “and frankly, no NAFTA is better than the original NAFTA that was in place.”
This is unprecedented, but is it legal?
In addition to having potentially dire consequences for CUSMA, a five per cent tariff on Mexican exports to the United States may not be legal under international trade law.
“No. Of course it’s not legal. And there will be a challenge to it under the World Trade Organization,” Stein explained.
Stein added that these tariffs bear strong resemblance to recent trade actions taken by Trump against Canada: the recently-lifted tariffs on Canadian steel and aluminum imports. This move resulted in a brief period of trade tension between the United States and Canada, which carried through into the negotiations of CUSMA.
WATCH: White House says Trump’s Mexico tariff threat is about national security
The tariffs Trump has threatened against Mexico have been raised on the premise of a national security threat — the same premise used to justify tariffs on Canadian steel and aluminum imports. While many experts and Canadian officials pointed out the weakness of this argument at the time, Stein points out that the case for a national security threat in this case is even weaker.
“It’s more egregious even than what was done on aluminum and steel, because you could argue that aluminum steel or component in equipment is used for military purposes. This is simply blatant,” Stein said.
“There’s nothing to do with trading goods and services, which is what tariffs are designed to be used for.”
Stegner added that the original North American Free Trade Agreement, which is still in effect, specifies zero tariffs on goods imported from Mexico, which makes Trump’s latest trade action illegal under the existing NAFTA. In addition, should CUSMA eventually be ratified, this trade action would also be illegal under the new agreement.
“It’s illegal under the existing NAFTA which has been in force for 25 years or so, and then it’s contrary to the new CUSMA, which Mexico has taken steps to implement and Canada introduced legislation for yesterday. So yeah, it’s definitely a step in the wrong direction and it’s not a gesture of goodwill in terms of implementing CUSMA,” Stegner said.
WATCH: Mexico president says they’ll respond ‘prudently’ to Trump tariff threats, says up to senate to ratify USMCA
Maxwell Cameron, political science professor at the University of British Columbia, explained that “NAFTA was explicitly designed to avoid this kind of bullying.”
“There is, however, no basis for linking trade and immigration, and no justification in trade law for Trump’s tariffs.”
There could be economic fallout. Should Canada respond?
Mexico’s economy would suffer should Trump’s proposed tariffs come into effect. The Mexican peso had already dropped more than three per cent against the U.S. dollar by Friday morning. It’s estimated that the five per cent tariff could knock 2.85 percentage points off the growth of Mexico’s exports.
Keith Head, a professor of business economics at the University of British Columbia’s Sauder School of Business, explained that Canada’s ordeal over steel and aluminum tariffs will likely serve as a model for what Mexico’s negotiations with the U.S. will look like.
“The US will agree to reverse its tariffs in exchange for Mexico ending retaliatory tariffs — that it will no doubt impose soon — and the Mexican government will agree to try harder on migrants,” he said in a statement to Global News.
In response, Freeland has told legislators that she’s confident Mexico will proceed with the ratification of CUSMA. However, some experts believe this move is reason enough to steer Canadian officials away from pushing for the implementation of CUSMA too soon.
“Trump has weaponized trade policy and tariffs. He is not only totally unpredictable. he’s totally unreliable as a trading partner,” said Peter Clark, international trade strategist with Grey, Clark, Shih and Associates.
“I have been concerned that the Canadian government is rushing into ratification a little bit too quickly and I think that this this supports my concerns.”