Mexico and the United States trade negotiations are accelerating, with Mexico gradually closing in on a temporary trade agreement with the United States. Analysts believe that if Mexico secures more favorable access to the American market ahead of Canada, which is still embroiled in tariff disputes with Washington, the impact on Canada may extend beyond just the automotive and metal industries, affecting agriculture and food processing industries as well.
According to a commentary published by The National Post on Thursday (September 17), there has been no official announcement of an agreement between the U.S. and Mexico, and significant differences still exist between the two parties. The negotiations are reported to primarily focus on issues including automobiles, steel, aluminum, U.S. domestic content requirements, and China’s investments in Mexico.
Nevertheless, the Canadian government should closely monitor the situation. If Mexico signs an agreement ahead of Canada and Canada remains entangled in trade disputes with Washington, the consequences may go beyond just the automotive and metal industries to also impact Canada’s agricultural and food industries.
If Mexico reaches an agreement with the U.S. first, it does not necessarily mean Mexico is “betraying” Canada.
Over 80% of Mexico’s exports are destined for the United States. Ensuring domestic employment, investment, and access to the U.S. market are crucial economic interests for the Mexican government.
For Canada, the real concern lies in whether the U.S. granting Mexico more favorable trade treatment while Canadian products still face tariffs or other trade barriers would change the competitive conditions for Canadian businesses in the North American market.
In the short term, if the U.S.-Mexico agreement primarily focuses on the industrial sector, the direct impact on Canadian agriculture may be limited.
Canada and Mexico are not direct competitors in all areas. Mexico has advantages in winter vegetables, fruits, as well as beer and spirits; Canada excels in grains, canola, beef, pork, and processed food.
However, Canada’s dependence on the U.S. market in agriculture gives this issue greater strategic importance.
According to data from the Canadian Department of Agriculture and Agri-Food, in 2024, the value of agricultural, agri-food, and seafood products exported from Canada to the U.S. was approximately 63 billion yuan, with about 60% of Canada’s agri-food exports heading to the U.S.
This means that Canada would find it challenging to find another market to completely replace the U.S. in the short term.
Even a minor competitive disadvantage for Canada could have significant economic implications.
For example, if Mexico receives preferential treatment leading to only a 5% squeeze on Canadian agricultural and food exports to the U.S., based on the export scale mentioned above, it could involve an annual sales volume of around 3.2 billion yuan. Taking into account the Canadian value-added portion in these exports, the direct economic impact could reach nearly 2 billion yuan annually.
This is not a prediction but a potential risk scenario derived from data analyzed by the Agri-Food Analytics Lab at Dalhousie University.
The primary agriculture and food and beverage processing industries contribute around 850 to 900 billion yuan to Canada’s GDP. A reduction of 20 billion yuan in exports would mean a cut in their output exceeding 2%.
However, what Canada should truly pay attention to may not be how much exports decline immediately following a trade agreement, but where companies will choose to locate their factories in the future.
When deciding on the location for the next processing facility, food companies may compare the three North American markets.
The U.S. boasts a population of over 340 million and a huge consumer market; Mexico offers lower production costs and could be more appealing to businesses if it secures stable access to the U.S. market.
With a population slightly exceeding 40 million, Canada faces higher operational costs and cross-border trade uncertainties.
Therefore, if Mexico gains preferential access to the U.S. market and Canadian products continue to be impacted by tariffs, manufacturing activities targeting the North American market may increasingly shift to Mexico or the U.S.
Once food processing facilities and related capacities leave Canada, attracting investments back is not an easy task.
Canada may consequently export more unprocessed agricultural products while importing more food processed from these agricultural products.
For farmers, there might be fewer domestic buyers; communities relying on the food processing industry may lose value-added job opportunities; and consumers may become more dependent on overseas-produced food.
Hence, the U.S.-Mexico trade negotiations are not only about traditional manufacturing industries like automobiles, steel, and aluminum.
If Mexico secures more favorable access to the U.S. market ahead of Canada, whether Canada’s agriculture and food processing industries can maintain their competitiveness in the North American supply chain could become the next critical issue.