News Analysis
Amid the threatening spectre of tariffs and trade tensions after Donald Trump’s re-election, Ontario Premier Doug Ford
says all premiers are aligned in calling for Mexico to be kicked out of the Canada-U.S. free trade deal because it functions as a
“backdoor” for Chinese goods.
“If Mexico won’t fight transshipment by, at the very least, matching Canadian and American tariffs on Chinese imports, they shouldn’t have a seat at the table or enjoy access to the largest economy in the world,” Ford said in a statement on Nov. 12.
He added on Nov. 20, “All the premiers, we know Mexico is bringing in cheap Chinese parts, slapping made-in-Mexico stickers on, shipping it up through the U.S. and Canada, causing American jobs to be lost, and Canadian jobs.”
According to a
report by the Descartes Systems Group, Mexico increased its exports to the United States by 54 percent from 2016 to 2022. During this same six-year period, Mexico’s imports from China skyrocketed by a whopping 138 percent.
In 2022, Chinese goods accounted for a
significant portion of Mexico’s exports to the United States: an estimated 15.7 percent of furniture and related products, 28 percent of electronics, 35.7 percent of plastic products, and 32.6 percent of rubber products.
While those figures are striking, the ramping up of trade between the two countries was only just getting started in 2022. From January 2023 to January 2024,
Chinese container exports to Mexico rose nearly 60 percent. Mexico-China trade is increasing at a dramatic rate, with annual growth rate reaching 34.8 percent in 2023—
up from just 3.5 percent the year before.
The concern among critics is that
Mexico can be used by China as a loophole to avoid high American tariffs. This trade practice is known as transshipment: producing goods, sending them to an intermediate destination, and then presenting the products as having come from that second country.
“They’re slapping a Made in Mexico sticker on and shipping it up,” Ford
said.
China has faced allegations of transshipment in many cases before. This includes, for example, China cheaply producing honey cut with cheap sugar like corn syrup or rice syrup in the eastern
province of Zhejiang and exporting it
to neighbouring countries before sending it onward.
Transshipment of goods allowed China to avoid the tariffs slapped on thousands of products by the first Trump administration, which were
largely left in place by the Biden administration.
As long as Chinese goods undergo “substantial transformation” after they are brought into Mexico, they
qualify for the preferential tariff rates of the United States-Mexico-Canada Agreement (USMCA, or CUSMA in Canada). This barrier is not as high as it sounds. Qualifying as substantially transformed can be as simple as bringing in component parts and then assembling them. It’s not as easy as slapping on a new sticker, but it’s not all that much more difficult than that.
The “backdoor” described by Ford includes a major source of worry for the auto manufacturing industry in both the United States and Canada: a surge in Chinese car assembly plants in Mexico.
The USMCA waives tariffs on cars in the North American market
provided that at least 75 percent of the parts are made in North America. This is up from 62.5 percent in the previous North American Free Trade Agreement (NAFTA). The concern is if China is making use of this provision by ramping up auto manufacturing in Mexico. From 2019 to 2023 alone, 12 new Chinese auto part companies
set up shop in Mexico.
A report from the Alliance For American Manufacturing published in February of this year warned that China’s routing of cars
through Mexico constitutes an “existential threat to America’s auto industry.”
The report argues that the import of large numbers of remarkably cheap Chinese cars—some selling for as low as US$14,000—“threaten the jobs of millions of American manufacturing workers” and bring about “an extinction-level event for the U.S. auto sector.”
The threat of China routing goods through Mexico has been written about by analysts for several years, but Trump’s re-election on Nov. 5 provided the impetus for premiers to start ringing the alarm bells. In Canada, worries are starting to swirl over the prospect of the new Trump administration enacting an assertive economic policy that may even feature a 10 percent across-the-board tariff on all products,
including American imports from Canada.
Canada joined the United States earlier this year in imposing 100 percent tariffs on Chinese electric vehicles, and
25 percent tariffs on Chinese steel and aluminum. Mexico has so far not followed suit.
Deputy Prime Minister and Minister of Finance Chrystia Freeland said last week that she shares Washington’s concerns about whether Mexico is “aligned” with the other two North American partners when it comes to the issue of China’s unfair trade practices.
“I’ve heard … some real concerns about whether Mexico is fully aligned when it comes to its policies vis-a-vis China,” Freeland said on Nov. 13. “I think those are legitimate concerns for our American partners and neighbours to have. Those are concerns that I share.”
‘We’ve Got to Stand Up’
Ontario Economic Development Minister Vic Fedeli affirmed in an
interview with CBC News that Trump’s re-election was the reason why Ford chose this moment to call for Mexico to be cut out of the USMCA.
“We know that the president-elect talks about China and the transshipments, and so we’ve got to stand up,” he said.
By taking a firm stance against Mexico’s rerouting of Chinese goods, the premiers of Ontario and Alberta are aligning themselves with the new Trump administration’s economic worldview, thereby seeking to ensure that Canada is seen as a friend of the Americans with mutually beneficial economic interests.
The potential goodwill from this alignment of interests will be particularly relevant when the USCMA comes up for review—and potentially for renegotiation—in 2026. At that time, Ontario, which has a major auto manufacturing industry, will benefit immensely if Canada is shielded from tariffs on cars. Alberta’s government, for its part, will be lobbying against tariffs that may hurt its extensive energy industry.
Besides setting up Canada as an economic ally of the United States, Ontario’s government in particular has a direct interest in stemming the flow of Chinese goods through Mexico. Fedeli
expressed particular concern over the backdoor import of Chinese cars.
“This tariff-jumping that they’re doing is really going to hurt Ontario, and it’s going to hurt Canada, but it’s primarily going to hurt Ontario because we are the only automaker,” he said in the CBC interview.
Ontario’s automotive industry employed
an estimated 160,800 workers in 2019. Ford’s government is aiming to maintain the support of these workers, their families, and the communities in southern Ontario that depend on the industry—especially if rumours of an early provincial election are true.
Given Alberta Premier Danielle Smith’s views on China, it’s not surprising that she was the first premier to echo Ford’s concern that Mexico has become a backdoor for Chinese goods.
Smith has expressed strong suspicion of the Chinese Community Party (CCP), including in
an interview with The Epoch Times where she warned against putting too much trust in China as a geopolitical partner.
“I think we now have to make sure that we understand what an adversary China is, and make sure that we’re not playing into our own demise,” she said.
She went on to warn against becoming too economically reliant on China.
“Chinese cheap production has hollowed out our manufacturing sector, not just in the United States but also in Canada,” she said.
On Nov. 16, Prime Minister Justin Trudeau
acknowledged the problem of China using Mexico as a backdoor for goods, saying that “there are concerns around the level of Chinese investment in Mexico that I think need to be addressed.” However, Trudeau said he remains hopeful that Canada and Mexico will “be able to work constructively over the coming months and perhaps years” to resolve the issue.
Faced with mounting criticism, Mexico may find itself having to choose between clamping down on the lucrative flow of Chinese goods to its shores, or end up being excluded from the North American economy by its trading partners.
