Sylvain Charlebois: While Canada fights Trump, Mexico is preparing to eat our lunch

Mexico appears to be moving closer to an interim trade agreement with the United States. It was reported last week that negotiators are accelerating discussions in hopes of reaching a deal before the U.S. midterm elections in November.

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No agreement has been announced, and significant differences remain. Talks reportedly focus primarily on automobiles, steel, aluminum, American content requirements and Chinese investment in Mexico. Nevertheless, Ottawa should be paying very close attention. If Mexico signs first while Canada remains embroiled in a tariff dispute with Washington, the consequences could extend well beyond automobiles and metals. Canada’s agri-food economy could become collateral damage.

Mexico would not be betraying Canada by reaching its own agreement. More than 80 per cent of Mexican exports go to the United States. President Claudia Sheinbaum’s government is protecting Mexican jobs, investment and market access. Canada should defend its own interests.

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The immediate impact on Canadian agriculture might be limited if the agreement remains narrowly industrial. Canada and Mexico are not perfect competitors. Mexico dominates many categories of winter vegetables, fruit, beer and spirits. Canada is stronger in grains, canola, beef, pork and processed foods.

But the strategic risk is much larger.

Canada exported approximately $63.8 billion in agri-food and seafood products to the United States in 2024. Roughly 60 per cent of our agri-food exports go south. No alternative market can replace the United States quickly.

Even a small competitive disadvantage could become expensive. If preferential treatment for Mexico displaced just five per cent of Canadian agri-food exports to the United States, $3.2 billion in annual sales could be affected. After accounting for the Canadian value added contained in those exports, the direct impact could approach $2 billion annually.

That is not a forecast; it is a plausible risk scenario based on our data at the Agri-Food Analytics Lab at Dalhousie University. Primary agriculture and food-and-beverage processing together account for roughly $85 billion to $90 billion of Canadian GDP. A $2-billion reduction would represent more than two per cent of the output generated by those sectors.

The larger danger is not what disappears from the export ledger when an agreement is signed. It is what happens in corporate boardrooms afterward.

Food companies deciding where to place their next processing plant will compare three markets. The United States offers more than 340 million affluent consumers. Mexico offers lower production costs and, potentially, more predictable American access. Canada offers just over 40 million consumers, high operating costs and uncertainty at the border.

If Mexico secures preferential access while Canadian products remain exposed to tariffs, production intended for the North American market will increasingly be located in Mexico or the United States.

Once processing capacity leaves, it is exceedingly difficult to bring back. Canada would export more raw commodities while importing a greater share of the processed foods made from them. Farmers would have fewer domestic buyers, communities would lose value-added employment and consumers would become more dependent on foreign production.

Food affordability could be affected. Initially, farm-gate prices might fall if products previously destined for the United States were redirected domestically. But consumers should not expect equivalent grocery-store reductions. Farm values are only one component of retail food prices.

Over time, lost investment, weakened economies of scale and higher costs for imported ingredients and packaging would push in the opposite direction. Canadian counter-tariffs on whey, milk proteins, baking ingredients, glass containers, aluminum foil and food packaging are counterproductive. They tax Canadian processors for importing inputs that often cannot be replaced domestically.

Canada is hitting its food industry from both directions: American tariffs constrain exports, while Canadian counter-tariffs raise domestic production costs.

Ottawa needs a more disciplined strategy.

First, Canada should return to substantive negotiations with Washington and seek an interim agreement rather than waiting for every CUSMA issue to be resolved. CUSMA-compliant agricultural products, fertilizer, ingredients, packaging and processing inputs should remain tariff-free during negotiations.

Second, Ottawa should remove counter-tariffs from essential food-production inputs. Retaliation may be politically satisfying, but taxing Canadian manufacturers and consumers is economically self-defeating.

Third, Canada must defend trilateral CUSMA while recognizing that Mexico may move independently. Diplomatic solidarity is useful, but it is not an economic strategy.

Agriculture cannot be an untouchable negotiating file. That includes a discussion about gradually modernizing supply management. Any concessions should be phased, compensated and exchanged for durable market access, not surrendered unilaterally.

Finally, Canada must become more attractive for food processing. Faster plant approvals, investment incentives, automation, interprovincial regulatory harmonization and improved transportation infrastructure would do more for resilience than another round of emergency subsidies.

Canada should preserve CUSMA if it can. But it cannot allow loyalty to trilateralism to leave the country without a deal while Mexico secures one.

The objective is clear: preserve American market access, stop taxing Canadian food-production inputs and ensure companies still have reasons to process food here. Mexico is negotiating with urgency. Canada must do the same.

Sylvain Charlebois is director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast and visiting scholar at McGill University.

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