Mexico Heads Into Third Round of U.S. Trade Talks as Canada Remains Stuck on the Sidelines

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North American trade diplomacy is now moving at two very different speeds. Mexico is preparing to host a third formal negotiating round with the United States in Mexico City, while Canada remains outside the official process despite regular contact with Washington. The contrast has become harder to ignore since the United States declined on July 1 to extend the Canada–United States–Mexico Agreement for another 16 years.

The pact has not expired, but the refusal to renew it has opened a decade of annual reviews and prolonged uncertainty. Mexico is engaging directly on automobiles, steel, agriculture, labour and economic security. Canada, meanwhile, is being told that conversations are not enough. The result is an uncomfortable moment for Ottawa: its largest trading partner is advancing detailed negotiations with the other member of a supposedly trilateral agreement, leaving Canada to defend both its market access and its place at the table.

Mexico Enters the Room With a Full Agenda

The third U.S.–Mexico round is scheduled to begin July 21 in Mexico City, with negotiating teams set to meet for three days. U.S. Trade Representative Jamieson Greer is expected to join the talks from July 22 to 24. The official agenda reaches far beyond tariff schedules, covering steel and aluminum, automobiles, economic security, labour, agriculture and electronic payment services. That breadth shows that Washington is not treating the meetings as a ceremonial review. It is using them to test how much of North America’s trading system can be rewritten around U.S. industrial priorities.

Mexico also enters the talks under intense pressure over its trade surplus with the United States. U.S. goods imports from Mexico reached roughly $534.9 billion in 2025, while exports to Mexico were about $338 billion, producing a goods deficit of nearly $197 billion. Greer has said the administration wants tools such as tariffs or quotas to control that imbalance without unnecessarily breaking supply chains. Mexico’s challenge is therefore to preserve access while convincing Washington that an integrated regional economy can still serve U.S. interests.

Canada Is Hearing That Contact Is Not the Same as Progress

Canada is not completely cut off from Washington. Greer has said he speaks with Canadian counterparts weekly, and Ottawa continues to communicate with U.S. officials about the future of CUSMA. The problem is that the United States does not consider those exchanges to be formal negotiations. Greer’s public description was blunt: regular discussion is not a concession and does not represent movement. That distinction matters because Mexico is already working through sector-by-sector demands while Canada is still trying to establish the terms for entering the same process.

Washington has acknowledged Canadian changes on contentious digital policies, including the retreat from a proposed digital services tax and steps related to online-streaming regulation. Yet Greer said he was not inclined to treat those moves as negotiating credit. From Ottawa’s perspective, that creates a frustrating dynamic: measures taken to reduce friction have not unlocked a formal round. From Washington’s perspective, Canada must still offer immediate changes on other disputes. Greer has suggested that a breakthrough may ultimately require a direct understanding between President Donald Trump and Prime Minister Mark Carney.

Mexico’s Economic Exposure Encourages Pragmatism

Mexico’s willingness to negotiate quickly is not difficult to understand. Its commercial relationship with the United States is enormous, with two-way goods trade estimated at $872.8 billion in 2025. More than 80% of Mexican goods exports went to the U.S. market in 2024, and Mexican factories are deeply connected to American retailers, automakers and industrial buyers. Even a modest loss of preferential access could ripple through manufacturing centres such as Monterrey, Saltillo and the Bajío, where investment decisions often depend on predictable cross-border rules.

That dependence gives Washington leverage, but it also gives Mexico practical influence. American companies rely on Mexican assembly, parts, agricultural products and energy-linked supply chains that cannot be moved overnight. Greer has described Mexican officials as pragmatic, a label that suggests they are willing to discuss U.S. concerns without accepting that the entire economic relationship should be dismantled. Mexico’s strategy appears designed to keep the process moving, narrow disputes into negotiable files and avoid a sudden rupture. For businesses, three rounds of talks do not guarantee a deal, but they provide more visibility than Canada currently has.

Automotive Rules Are Becoming the Defining Fight

Automobiles sit at the centre of the negotiations because the industry illustrates how thoroughly the three economies have been stitched together. Current CUSMA rules generally require passenger vehicles and light trucks to contain 75% North American value to receive preferential treatment. The agreement also requires 40% to 45% of vehicle content to be produced by workers earning at least US$16 per hour. Those standards were already stricter than the old NAFTA rules and forced automakers to document where major parts, materials and labour originated.

The Trump administration now wants to go further. A proposal raised during U.S.–Mexico talks would increase the overall North American content threshold to 82% and add a requirement that at least half of a vehicle’s value come specifically from the United States. Washington is also seeking tighter treatment of core parts and advanced electronics, many of which are sourced from Asia. For Canadian plants in Ontario and Mexican plants across the northern and central states, a U.S.-specific requirement could redirect investment even when a vehicle remains overwhelmingly North American. It would also turn a regional trade rule into a more explicitly American industrial policy.

China Has Become the Third Country in the Negotiating Room

The dispute is not only about trade among Canada, Mexico and the United States. Washington is increasingly focused on whether Chinese goods, capital and components can gain indirect access to the North American market. U.S. officials have called for tougher origin rules in automobiles, electronics, pharmaceuticals and other strategic sectors, arguing that the agreement’s benefits should flow primarily to its three members rather than to outside producers using regional assembly as an entry point.

Chinese electric vehicles have become a particularly sensitive example. Mexico’s foreign minister has acknowledged that the issue is part of discussions with Washington, while Canada’s decision to permit up to 49,000 Chinese EVs annually at a 6.1% tariff has added another source of tension. Ottawa says that quota represents less than 3% of Canada’s new-vehicle market and is tied to a broader trade arrangement with China. Washington sees the question through an economic-security lens. Mexico and Canada may differ in their policies, but both now face pressure to prove that North American preferences will not become a pathway for Chinese industrial expansion.

Canada’s Disputes Reach Beyond a Single Concession

Canada’s difficulty is that there is no single obstacle it can remove to settle the relationship. U.S. complaints have included Canadian dairy protections, provincial restrictions affecting American wine and spirits, digital regulation, government procurement preferences and Canada’s evolving trade relationship with China. Ottawa, in turn, is seeking relief from U.S. measures affecting Canadian steel, aluminum, automobiles and other exports. Each file touches a different domestic constituency, making a rapid package politically and economically difficult.

Carney has argued that the United States cannot dictate the terms of a balanced agreement, while defending policies such as supply management and a stronger Buy Canadian approach. That stance resonates with sectors that fear Canada will be asked to surrender long-standing protections simply to gain admission to talks. At the same time, exporters need certainty. A steel producer, an auto-parts supplier or a farmer cannot plan around an undefined annual review process forever. Canada’s position must therefore combine resistance with a credible negotiating offer—strong enough to protect domestic interests, but concrete enough to move Washington from weekly discussion into formal bargaining.

Bilateral Talks Cannot Fully Replace a Trilateral Pact

The optics of U.S.–Mexico talks are uncomfortable for Canada, but they do not automatically create a separate trade agreement. Mexican officials have continued to defend CUSMA’s trilateral structure and have said they are not seeking a side deal that abandons Canada. Bilateral meetings can still be useful because many disputes are country-specific. Agriculture, energy, labour enforcement and electronic payments may require different solutions in Mexico than dairy access, provincial liquor systems or procurement policies require in Canada.

The legal framework also remains in force. CUSMA took effect on July 1, 2020, and the U.S. decision not to extend it in 2026 did not terminate the pact. Instead, the countries now move into annual reviews that can continue until 2036 unless they agree to extend the agreement or a government formally withdraws. Any durable rewrite that keeps the North American framework intact will ultimately need all three countries. Mexico may reach understandings first, and Washington may use those understandings to pressure Ottawa, but Canada cannot simply be edited out of an existing trilateral treaty without a much larger political and legal shift.

The Cost of Being Sidelined Is Uncertainty, Not Immediate Exclusion

Canada still trades with the United States under CUSMA, and the commercial relationship remains immense. U.S. goods trade with Canada totalled an estimated $719.5 billion in 2025, including about $336.5 billion in American exports and $383 billion in imports from Canada. Canadian government figures also show how integrated the broader relationship is: nearly C$3.6 billion in goods and services crossed the border each day in 2024. Energy, vehicles, machinery, food and industrial inputs move through supply chains built over decades.

The immediate danger is therefore not that trade suddenly stops. It is that companies begin making long-term decisions without knowing what the rules will become. A manufacturer considering a new parts plant may favour the country already negotiating detailed origin rules. A multinational may delay Canadian investment until it understands whether U.S.-specific content thresholds will reduce the value of Canadian production. Canada retains leverage because American consumers and industries depend on Canadian energy and inputs, but leverage is most useful inside a negotiation. Remaining on the sidelines for too long risks allowing others to define the starting point before Ottawa enters the room.

Mexico’s Progress Raises the Pressure on Ottawa

The third round will reveal whether the U.S.–Mexico process is producing genuine compromises or merely organizing a long list of disagreements. The clearest signals will come from automobiles, where Washington has proposed U.S.-specific content rules, and from steel and aluminum, where tariffs remain a major source of friction. Any movement on quotas, agricultural access, Chinese-linked supply chains or electronic payments would show that the two sides are beginning to assemble a broader package rather than simply restating their positions.

For Canada, the strategic risk is not that Mexico wants to replace it. The greater risk is that Washington and Mexico settle key principles first and then present Ottawa with a narrower range of choices. Greer’s suggestion that Trump and Carney may need to reach a direct understanding makes the political channel especially important. Canada does not need to mirror Mexico’s negotiating posture, but it does need a path from defensive public messaging to specific bargaining. The agreement remains alive, and Canada remains essential to North American trade. Still, every formal round completed without Ottawa gives Mexico more influence over the shape of the next phase.

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