Mexico Opens New CUSMA Round With Washington While Canada Is Left Out

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A new fault line has opened inside North America’s most important trade pact. U.S. and Mexican negotiators began a third bilateral CUSMA round in Mexico City on July 21, with Canada absent from the table as Washington presses for major changes to autos, metals, agriculture and economic-security rules. The three-day meeting is the first formal negotiating round since the United States refused to extend the agreement in its current form on July 1.

The timing is especially difficult for Ottawa. As Mexico advances through structured talks, Canada is confronting a new U.S. plan to impose 50% tariffs on nearly $20 billion worth of Canadian imports. CUSMA remains legally in force, but the contrast is stark: Mexico is bargaining over the pact’s future while Canada is still trying to move its discussions with Washington into a formal negotiating phase.

Mexico City Talks Begin Without Ottawa

The latest round is not an improvised meeting. Washington and Mexico announced a three-stage negotiating schedule in May, beginning with talks in Mexico City on May 28 and 29, continuing in Washington on June 16 and 17, and returning to the Mexican capital during the week of July 20. The first session covered automotive rules of origin, steel, aluminum and economic security. The second expanded into agriculture, labour, the environment and regulatory compatibility.

That sequence has given Mexico something Canada currently lacks: a defined process with recurring meetings, technical work and a visible next step. The third round is expected to run for three days and examine the details behind several politically sensitive sectors. Although CUSMA is a three-country agreement, bilateral discussions can be used as governments prepare positions and try to settle disputes. The concern for Ottawa is not that bilateral talks exist, but that Mexico is already shaping potential compromises while Canada has no comparable formal round on the calendar.

Why Mexico Reached the Table First

Mexico has earned praise in Washington for taking what U.S. Trade Representative Jamieson Greer described as a pragmatic approach. The Mexican government did not mirror every U.S. tariff with immediate retaliation, giving negotiators more room to bargain over relief. Mexico is seeking reductions in the 25% U.S. national-security tariffs affecting its automotive sector and the 50% duties applied to its steel and aluminum products.

Mexico has also shown willingness to work on issues beyond traditional tariff schedules. U.S. officials have pointed to discussions about aligning export controls, protecting intellectual property and restricting exports of avocados connected to illegal deforestation. Mexico’s new ambassador to Washington, Roberto Lazzeri, has said he hopes an updated deal can be reached by the end of 2026. That goal reflects the economic pressure facing both sides. Delays can freeze investment decisions, particularly for factories that need certainty about where components may be sourced and whether finished products will continue qualifying for preferential access.

Canada’s Talks Have Not Formally Started

Canada has remained in regular contact with Washington, but those conversations have not developed into formal CUSMA negotiations. Greer said in mid-July that he speaks with Canadian counterparts weekly, yet he argued that Ottawa had not offered the concessions the Trump administration wants. He drew a distinction between maintaining communication and making concrete movement on disputed policies.

Ottawa rejects the suggestion that it has been passive. Prime Minister Mark Carney said Canada has submitted detailed proposals to settle outstanding disputes and modernize CUSMA. Canada has also rolled back or modified policies criticized by Washington, including its proposed digital services tax, but U.S. officials have not treated those steps as sufficient bargaining concessions. Greer suggested that a breakthrough may ultimately require a direct understanding between Trump and Carney. Until that happens, Canada faces a difficult imbalance: officials are talking frequently, but Mexico is the partner participating in scheduled rounds where draft rules and technical trade-offs may begin taking shape.

CUSMA Was Not Renewed — But It Is Still Alive

The July 1 decision did not immediately cancel CUSMA. Under the agreement’s review mechanism, the three governments met after its first six years to decide whether to extend the pact for another 16-year term. Canada and Mexico supported an extension, but the United States declined to renew the agreement in its existing form. That decision left the pact operating while opening a period of annual reviews.

Unless the three countries later agree to renew it, CUSMA can continue until 2036 before reaching its scheduled termination point. This creates a long runway, but not necessarily long-term certainty. Businesses considering a new assembly plant, mine, warehouse or cross-border supply contract often make decisions years in advance. Annual political reviews can therefore become a source of risk even when tariffs do not change immediately. Washington’s strategy appears designed to use that uncertainty as leverage, encouraging Canada and Mexico to accept revisions rather than live with a decade of recurring negotiations and the possibility of eventual expiry.

Autos Could Redraw the North American Map

Automotive rules are among the most consequential issues because a vehicle can cross North American borders several times before reaching a dealership. Current CUSMA rules generally require 75% regional content for a vehicle to qualify for preferential treatment. They also include high-wage content requirements covering major components such as engines, transmissions, body structures and electric-vehicle batteries.

During the first U.S.–Mexico round, Washington proposed raising regional content to 82% and requiring 50% of a North American-built vehicle’s value to originate in the United States, according to people briefed on the negotiating position. The proposal reportedly contained no specific allowance for Canadian content within that U.S. threshold. For Canadian parts makers and assembly plants, the risk is clear: a rule negotiated first with Mexico could later be presented to Ottawa with limited room for revision. Automakers would then have to recalculate sourcing strategies across a deeply integrated system built around plants in Ontario, Michigan, Ohio, Texas and Mexico.

Metals, Farming and Labour Add More Friction

The negotiations reach far beyond automobiles. Steel and aluminum remain central because both Canada and Mexico are already subject to U.S. national-security tariffs on those products. Mexico has asked Washington to reduce its reliance on Section 232 tariffs, while U.S. officials want stronger protections against metals or components from non-regional producers entering through North American supply chains.

Agriculture is another difficult area. Mexico has objected to possible seasonal duties and has defended its existing rules of origin, which Economy Minister Marcelo Ebrard has described as among the world’s most stringent and complex. Labour and environmental enforcement are also part of the agenda, along with regulatory compatibility in sectors such as medical devices, pharmaceuticals and cosmetics. These files may sound technical, but they affect everyday commercial decisions: whether a farmer can ship produce during a competing harvest season, whether a manufacturer must certify the origin of every input, and whether a product approved in one country can enter another without duplicative testing.

China Is the Unspoken Fourth Player

The talks are formally between North American partners, but China is influencing nearly every major demand. Washington uses the term “economic security” to describe efforts to prevent companies from non-market economies from using Mexico or Canada as a route into the U.S. market. U.S. officials want tighter rules of origin, stronger controls against transshipment and more closely aligned barriers covering vehicles, auto parts, steel, aluminum, electronics and other strategic goods.

Mexico’s rapidly growing market for Chinese vehicles has intensified the pressure. Chinese-brand vehicle sales in Mexico reportedly rose 30% in the first half of 2026, even after Mexico introduced tariffs of 50% in January. Their market share increased to 17%, from 14% a year earlier. Washington sees those numbers as evidence that tariffs alone may not prevent Chinese companies from gaining a regional foothold. Mexico, however, must balance U.S. demands against its own interest in affordable imports, industrial investment and access to global suppliers. Canada faces the same strategic dilemma but is not currently in the room where the U.S. and Mexico are testing possible solutions.

Canada’s New Tariff Shock Raises the Stakes

Canada’s exclusion from the Mexico City round became more politically charged after Washington announced another tariff action on July 20. The Trump administration invoked Section 338 of the Tariff Act of 1930 to impose 50% duties on nearly $20 billion in Canadian imports. The measures target categories connected to motor vehicles, alcoholic beverages and dairy, and are scheduled to take effect after 30 days.

U.S. officials argue that the action responds to discriminatory Canadian treatment of American exports, including provincial restrictions on U.S. alcohol, dairy market-access policies and Canadian measures affecting vehicles. Ottawa disputes that account. Carney said Canada’s countermeasures merely matched earlier U.S. tariffs that his government considers violations of CUSMA. He also said Canada is prepared to intensify negotiations. The clash creates a much harsher environment than the one surrounding the U.S.–Mexico talks: Mexico is seeking relief through a structured bargaining process, while Canada is facing an expanding tariff fight before formal CUSMA negotiations have begun.

Bilateral Bargaining Could Reshape a Trilateral Deal

CUSMA cannot be permanently rewritten by only two of its three members, but bilateral negotiations can still determine the practical shape of a future compromise. If Washington and Mexico agree on new automotive formulas, economic-security rules or sector-specific safeguards, those terms could become the starting point for later talks with Canada. Ottawa would technically retain the ability to reject them, but doing so could prolong annual reviews and tariff uncertainty.

This is why industry groups have emphasized preserving the trilateral structure. North American commerce is not neatly divided into one U.S.–Mexico system and one U.S.–Canada system. The regional pact supports roughly $1.6 trillion in annual trade, while Canadian and Mexican firms often supply the same U.S. factories. Canada and Mexico also recorded nearly $56 billion in two-way merchandise trade in 2024. A rule designed in bilateral talks can therefore ripple across the third country, changing sourcing costs, investment plans and market access even before the treaty’s legal text is formally amended.

Canada’s Path Back Runs Through Washington

Canada is not without leverage. The United States remains Canada’s largest trading partner, and nearly $3.6 billion worth of goods and services crossed the border each day in 2024. Statistics Canada reported that 71.7% of Canadian merchandise exports still went to the United States in 2025, despite that share falling from 75.9% a year earlier. The relationship is too large and integrated for either government to treat as a minor file.

Still, Ottawa’s immediate challenge is converting economic importance into negotiating access. Washington wants movement on dairy, alcohol, digital regulation, automobiles and retaliatory tariffs, while Canada wants relief from U.S. duties and recognition that existing CUSMA commitments should be honoured. A direct Trump–Carney understanding may be needed to unlock formal talks. Until then, Mexico’s head start matters. Canada remains a legal member of the pact and must approve any trilateral revision, but the longer it stays outside detailed bargaining rounds, the greater the risk that the core choices will be narrowed before Canadian negotiators reach the table.

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