Canada Excluded from USMCA Renegotiation as Economy Contracts
Theo Al Jazeera English
The U.S. has proposed raising regional content requirements for North American-built cars to 82%, with 50% from U.S. production, while Canada has been excluded from USMCA talks in Mexico City. Canada's economy has contracted for a second consecutive quarter amid tariff turmoil, and Ottawa is strengthening trade ties with China. Prime Minister Carney has called for a new partnership with the U.S., but warned that a country lacking self-sufficiency is not truly sovereign.
The administration of U.S. President Donald Trump is seeking to boost the regional content threshold for cars assembled in North America to 82%, including a requirement that 50% of the value be produced in the United States, in order to qualify for tariff preferences under the U.S.-Mexico-Canada Agreement (USMCA), according to four anonymous sources cited by Reuters.
The proposal emerged during USMCA revision talks in Mexico City, where Canada was not represented. Automotive industry officials said U.S. Trade Representative Jamieson Greer would negotiate with Mexico and then present Canada with a take-it-or-leave-it offer.
If accepted, the proposal would mark a significant shift from the current USMCA, which requires 40% of the value of ‘core parts’ for North American passenger cars to come from high-wage regions such as the U.S. or Canada. For pickup trucks, that threshold is 45%. Overall, cars built in North America must contain 75% regional content to receive benefits.
Canada’s exclusion from talks comes amid rising tensions between Washington and Ottawa. The USMCA, which took effect in 2020 replacing NAFTA, maintains a free-trade zone accounting for nearly $1.6 trillion in annual three-way trade. However, last year Trump imposed 25% tariffs on cars and auto parts from Canada and Mexico, alongside 50% duties on steel, aluminum and copper from those countries.
Greer has stated he intends to maintain some tariffs on key goods from Mexico and Canada in the revised trade agreement, although both partners may benefit from certain preferential rates. Currently, cars from Japan, South Korea, the European Union and the United Kingdom can be imported at lower tariffs than those from Canada or Mexico.
Canada’s Economy Contracts
Canada’s economy shrank in the first quarter compared with a year earlier, marking a second consecutive quarter of decline amid tariff-related uncertainty. Statistics Canada reported that gross domestic product unexpectedly fell 0.1% on an annualized basis in the first quarter, following a 1% decline (revised) in the previous quarter. On a quarter-over-quarter basis, Q1 GDP was flat after a Q4 contraction.
“Our forecasts for growth to accelerate in the second half of the year and into 2027 are conditional on a favorable USMCA renegotiation, an early end to the conflict in the Middle East and normalization of shipping through the Strait of Hormuz,” Tony Stillo, director of Canada economics at Oxford Economics, said in a note. “The economy could face a bumpy road ahead.”
Canada’s economy has been battered by Trump’s tariffs, with the president at one point threatening to annex the country as the 51st U.S. state. Prime Minister Mark Carney was elected on a platform of strengthening and diversifying the economy away from reliance on the United States.
In that effort, Canada is deepening economic ties with China, its second-largest trading partner. Chinese Foreign Minister Wang Yi, meeting with Canadian Foreign Minister Anita Anand on Friday, said Canada could exceed its goal of increasing exports to China by 50% by 2030. Wang is making a three-day visit to Canada, the first state visit by a Chinese foreign minister in a decade. He suggested that Canadian exports to China could grow by 100% based on the trajectory of bilateral ties. In January, Canada and China reached an initial trade agreement on tariff reductions for electric vehicles.
“Canada is focused on growing the economy and diversifying trade relationships,” Anand said at the meeting.
Despite tensions, Canada continues to press for a strong relationship with the U.S. In a speech at the Economic Club of New York on Thursday, Carney called for a new partnership with the U.S. as the two countries decide whether to renew the agreement. He argued for a “genuine partnership” that re-imagines collaboration in specific areas deeply challenged by global competition. “Our core objective across these partnerships is to strengthen our strategic autonomy,” Carney cautioned, adding that “a country that cannot feed, fuel or defend itself is not truly sovereign.”
