This transcript has been lightly edited for clarity.
John Milewski:
Welcome to the Need to Know podcast from the Wilson Center, a podcast for policymakers available to everyone. Always informative, nonpartizan and relevant. We go beyond the headlines to understand the trend lines in foreign policy.
Welcome back to another episode of Need to Know. I'm your host, John Milewski. Need to know is brought to you by the Woodrow Wilson Center. The center is congressionally chartered, scholarship driven, and fiercely nonpartisan. Well, it was quite a week on the North American continent on the trade front, with Canada, Mexico and the US agreeing to last minute deals to at least temporarily halt the threat of significant tariffs being placed on goods entering the U.S. from its neighbors north and south.
To get a sense of how both Mexico and Canada are reacting, and to gather some thoughts on what might happen next, we're joined by Lila Abid, who is director of the Wilson Center's Mexico Institute, and Christopher Sands, who leads the center's Canada Institute. Lila, Chris, welcome. Thanks for joining us.
Christopher Sands:
Great to be here, John.
JM:
So, let's start with whether or not Canada and Mexico are thinking of this as a trade war. But, I mean, where are we as far as, the orientation that the nations are taking toward President Trump's moves? Lila, can we begin with you? Is does Claudia Sheinbaum think that she is now involved in a trade war?
Lila Abed:
Mexico's government understands clearly that the Trump administration has inherently linked trade with security and migration. And so some of the issues that were included into the deal between the US and Mexico, approximately 12 hours before the tariffs were expected to be set into force, Mexico promised to deploy to deploy 10,000 of its National Guard members to the US-Mexico border to crack down on illegal migration, but also to stop the flow of fentanyl into the United States.
Another, sort of deal that was struck between both governments was that they will now be hosting, negotiations and working groups on trade, as well as on security with high level representatives from both governments. You know, Mexico also, said that the US had promised to, stop the trafficking of high powered weapons into Mexico. And so I think what we're seeing from this deal, John, and to answer your question more, precisely, is that Mexico's understanding that in order to avoid a trade war and to avoid tariffs, it needs to produce immediate results on the security front as it pertains to fentanyl and combating organized crime, but also to, reduce the
flow of migrants that are entering into the US Mexico border. And so whatever, happens in the next 30 days. President Claudia Shane Bom is committed to both of these issues. I think that her security plan has really hopeful aspects to it that will allow her government to produce immediate results. I think on migration, it might be the weakest link for Mexico's government, given that, Claudia, Shane, mom's, plan to, you know, receive a large number of migrants into Mexico, call this Mexico, embrace this.
You have some shortcomings, especially pinpointing some of the shelters, around the border region, which could concentrate migrants in an already, condensed area. There could be a humanitarian crisis. If you have migrants at the border region, they could easily reenter into the United States an organized crime. Of course, could take advantage of the vulnerability of many of these individuals that have recently been repatriated into Mexico.
I hope that both governments were able to establish clear metrics and indicators to evaluate and measure the deliverables 30 days from now, because if not, I think the carnage chain is going to be left at the mercy of the white House in terms of interpreting whether it did or didn't do enough to stop the imposition of tariffs.
JM:
So so, Chris, a a different story in Canada in the sense that, well, President Sheinbaum is relatively new to her office, but not new to us Mexico relationships. We have the opposite. We have a veteran of relations in Canada, but he's got one foot out the door. How is how is this being approached and how does that that instability in the leadership equation affect this?
CS:
Well, I think it's a very important aspect of how Canadians have reacted to this. For the last year or so, they've known that there was a potential problem if Donald Trump was elected president of the United States because Justin Trudeau, who was prime minister through the first Trump administration and seemed to do all right, was able to be involved in negotiating successfully the Usmca.
And that was a win for Canada because it wasn't a loss of access to the US market. He spent the intervening Biden years mocking his opposition by trying to tie them up in a very unflattering ways, too, and Make America Great Again movement to, Donald Trump's, support base. And it's a small continent. You can't hide that.
You know, obviously, Donald Trump can hear all of this. So Canadians kind of went into this election period thinking we have a liabilities of prime minister, which is one of the reasons that I think the Prime Minister saw his poll levels so low that he couldn't recover and he chose to resign. But what terrible timing, because now there's a Liberal leadership race, to replace him as leader of his party.
That person becomes prime minister. But we have to have an election this year, and it's likely we'll have it sometime in April. May. That will lead to a new government taking power in June. And as many of the people who watch, or listen to Wilson now will know that President Trump has tried to have a very aggressive first 18 months in office, and Canada is going to be without effective leadership, without that strong sense of a government with a mandate to respond for the first six months, including when the, tariffs snap back on or at least when we run out of this 30 day extension.
JM:
You know, when I when I began, I used the I invoked the word trade war, the term trade war. And, you know, I wasn't attempting just to be provocative. And Lila certainly talked sense to us and that what we're doing right now is we're avoiding a trade war potentially. But certainly the, the, the elements are in place and something, Chris, that I think of from the Canadian perspective is the recent comments by Trudeau about encouraging Canadian citizens to reconsider, travel to the US, at leisure or recreational travel, tourism essentially.
Are people listening to him? Is he still in a position to influence people in that regard?
CS:
Well, you know, I follow Canada for a long time, and when I started out would have been, say, the 80s and 90s, there was still a palpable anti-Americanism in Canadian life. It's one of the reasons the original Canada-U.S. Free Trade agreement was so controversial. And yet in the time since then, free trade has really healed a lot of wounds.
And Canadians, from coast to coast, really had accepted, that we had a very good partnership. And they were pretty pro-American. We've gotten through a lot of bumps in the road. You know, Canada chose not to go to Iraq with us, during the Bush administration, the Obama administration didn't support the Keystone pipeline. You know, all of the disputes that we've had, what had what the comments from President Trump, which, you know, trade war being won, but most most importantly, the talk about cap making Canada 51st state using economic force to make Canada take that choice, that's really riled Canadians and brought back a kind of nationalism and also, unfortunately, a bit
of anti-Americanism that matters because whoever becomes the next prime minister of Canada after Trudeau and whoever will be prime minister for the rest of the Trump administration, is going to have to navigate some real resentment on the part of the of Canadians who think that the Americans have have been really unfair to them. Now they can distinguish between Donald Trump and the average American.
So I don't expect this to lead to violence or anything like that. But what could have been a very good partnership for the next four years is going to be a lot tougher for the US to navigate.
JM:
Lila, from the Mexican point of view, are there similar elements of resentment? How are Mexicans taking what is essentially was a threat to, begin a negotiation?
Interestingly enough, Mexican society, different sectors, industries, really, you know, came to support Claudia. Shame bomb ahead of the threat of a 25% tariff on all Mexican imports into the United States. President Shay bomb has around 77% approval rate. Since, this deal was struck. And so she has actually strengthened her position internally within not only her governing party, but across different sectors of Mexican society from Mexico.
LA:
It's a little bit more complicated, John. 80% of Mexico's exports aren't destined to the United States. Mexico supplies nearly half of the vegetables and fruits that arrive, to the United States, as well as beer, tequila, you know, tomatoes, a lot of agricultural products. And so any, any sense that a tariff could actually be imposed on Mexican imports would completely derail Mexico's economy and would actually lead to a potential recession.
And so, of course, even though we see this overwhelming support for Mexico's president behind the scenes, there is a real fear that if this actually continues to be a threat and if, in fact, is imposed at the end of February, beginning of March, that, you know, this could lead to a decline in Claudia, Shane Bom support.
And so, again, this is a temporary victory, I would say of sorts for Mexico's first female president. But she is not out of the dark yet. She's not out of the woods. And I think everybody in Mexico understands that. I don't believe that there's that the exact same sort of resentment that, Chris alluded to in Canada. But I think that's definitely a possibility in the very near future, if US-Mexico relations in North America integration, isn't sort of revive and reignited, especially ahead of the Usmca review.
JM:
As we look ahead to the next deadline fast approaching. We only about 30 days with with this situation. Well, is it clear what the US wants? And is it clear to Canadians or Mexicans that they're willing to comply further? Is there or are we just sort of in this amorphous thing where until the leaders speak, we won't know?
CS:
I think it's one of the problems that Canadians have had, John, is that the the the rationale keeps shifting. You hear from Howard, the Commerce secretary nominee, that it's all about the border. It's all about drugs. Then you hear someone else talk about it. It's about 2% spending, of GDP on defense. The old NATO argument. Others have suggested it's about immigration cooperation.
And so the message has been quite mixed. What also I think gets Canadians riled is that they they feel that they are in favor of whatever Trump wants, like all of these things, they're against fentanyl, they're against irregular migration. They see these as things that they're on the same side as the US on. And so all you have to do is ask it if you think we need to spend more, tell us, and we can do that.
But having a negotiation with the gun to your head of a 25% tariff to really cripple the Canadian economy, is really frustrating when the demand isn't clear. So you're threatening us, but what you want seems so simple. We could just do it. Why all the drama and I that I think, personally, it's made worse by the fact that Canadians and Americans shameless share the same social media space.
So Donald Trump, who is so good at getting his message across as communicated to Canadians that he's angry he's going to hit him with a 25% tariff. So if you're a politician in Canada, you know that not only is the president communicated to you, he's communicated all Canadians that you better do something or else there's going to be a disaster.
That's just a terrible position for the Canadian politicians to be in, because their voters don't necessarily trust them either. And with an election coming up, I it feels a little bit if you're in Ottawa, like Trump is kicking Canada while it's down. And that, I think is part of the reason the resentment is so strong.
JM:
Lila, is there any more clarity on what might be next from the Mexican perspective?
LA:
You know, the Mexican government? When the imposition of tariffs was announced on February 1st, had a so-called plan B that was supposed to impose retaliatory tariffs that also included non-trade measures, that it was supposed to be announced, you know, before the tariffs took effect, of course, with the, suspension of tariffs that obviously was not unveiled, but it's it wouldn't be surprising.
It actually should be expected that Mexico's government would retaliate with some sort of tariffs if the United States does go forward, with tariffs, after or on March 4th. And so this again would in essence start and ignite a trade war that would really debilitate North Americans competitiveness. It would debilitate the security, the prosperity of North America.
It would cripple the interconnectedness, the interdependence of regional supply chains, especially in the automotive sector, the electronics, in manufacturing and in others, you know, not only with Usmca but even before that, with NAFTA, these regional supply chains are highly interdependent. And so any disruption could really cause havoc, not just in Mexico, but in the United States and Canada alike.
And at a moment where Washington is trying to counter China and really compete with China, it really needs its North American partners to support its economy, to support its policies, and to work together as a really, strengthened, global trading bloc. And so I think that that will be, you know, something that Washington should consider. And I, I, you know, from what we've heard from Claudia, Shane, mom, she is very much committed to the Usmca and to strengthening North America.
So hopefully they're able to strike a deal that is, you know, more permanent than 30 days. And I and I hope that that's true for the future of North America and its prosperity.
JM:
Thank you. Chris. Jumping out of his seat, he went to weigh in on this. He can't wait.
CS:
I can't wait. Well, John, I think I think Lila has given us sort of the answer that a lot of people think we need to go to, which is there is a review of the Usmca built into the agreement that supposed to happen in 2026. The president has said on more than one occasion he would like to start that review early.
Do it as soon as possible. Well, that's the perfect thing. Forget 25% tariffs. Let's go back to Usmca. If there are concerns about the border concerns about other things, let's have it in a normal negotiation. I mean, all these threats are happening when we haven't got confirmed ambassadors, from the US in Mexico City or in Ottawa. We don't even have the USTR head going.
Just started his, confirmation hearings today. So let the administration take shape, let people get into their jobs, and let's have a negotiation. We're all committed to that. It's going to happen anyway. Why not just start that and package some of these more painful issues into that context? Because as long as you're afraid a 25% tariff is going to hit, it's going to stall business investment, it's going to stall hiring, it's going to stall a lot of economic activity.
And that's months go on. That's going to really hurt all of our economies. So the best thing is we've got a vehicle. Let's just take the 25%, put it to one side and focus on making North America great again.
JM:
You know, initially when President Trump was raising this, or rattling the saber about potential tariffs for our neighbors north and south, there was speculation that it was just that opening gambit to get to that review of Usmca earlier, not wait another year. But is that any part of what might be happening here, or is that unclear?
LA:
I, I believe, John, that yes, there is there is something to be said about accelerating the Usmca review by threatening tariffs. Right. But in the case of Mexico, which again, is different than cannabis, there are real underlying issues that are top priorities for the Trump administration, and that is stemming the flow of fentanyl and reducing migration. Right. These are two top priorities of of the white House.
And so, yes, trade and Usmca are linked to security and migration. But I think for Mexico, there will be an added pressure to deliver on all of these fronts simultaneously. If not, they're going to continuously face the possibility of tariffs. Now, I completely agree with Chris. I think we do have the correct vehicle, which is Usmca, to sort of hash out the differences between all three countries on all different kinds of, you know, problems or, you know, trade differences that they may have, but tariffs in place again, will they, you know, they diminish the credibility, they diminish investment.
All of the things that Chris already mentioned. But I do believe that for Mexico it will have to deliver, more perhaps than Canada on migration and on, security. Now there is one thing I would mention that I think is something that Mexico and the United States will have to deal with and grapple with in the near future.
And that's up in the white House press release on tariffs. The Trump administration claims that the Mexican government has an intolerable alliance with drug trafficking organizations. An accusation that Claudia shame mom has refuted. But the nonetheless cost havoc, right. Because how you're going to bolster security efforts between, you know, both trading partners between the US and Mexico is going to be undermined if the Trump administration believes that the Mexican government has actually colluded with cartels.
So something to, you know, another wrench to throw into the equation. But nonetheless, these are all the issues that we're grappling with for the next month, but also for the next months and years to come.
JM:
Really short on time. But I want to ask both of you to, a thought about, you know, when we'll start to feel it, whatever happens, whether these agreements start to have tangible results or whether we end up in a dueling tariff war. If the if the extent of the extension can go beyond the 30 days, when will people at the supermarket, in the streets, when buying a car, wherever it might be?
When will people start to feel a difference?
CS:
Well, I think the crazy thing about all of our North American integration is that just about every sector is going to be felt, things that we, we known, in the case of gasoline, they're talking about an increase of about $0.75 a gallon, especially for the Midwest. We know that that cars, other products that have components are going to have the 25%.
And so we don't have a mechanism, you'll have 25% on one stage of the car. And then again when it cross the border again, and we're the rule of thumb in the auto industry is that a vehicle crosses the border seven times while it's produced. So watch that 70 that 25% just ramp up, through the border.
JM:
And that's both borders.
CS:
Yeah. Because after going north and you know it. All right. Yeah. So it's those are the kind of things that will hit people pretty fast. And that's one of the reasons I know I don't want to sound too optimistic here, but it's one of the reasons, I think, that we won't get to that point. One thing that Donald Trump does not want to be is Joe Biden.
And one of the things that was tough for Joe Biden was the inflation in the economy. That's always a killer of governments. It's really, really tough. This is going to be inflationary. That's carried to the nth degree. And remember, I think Mexico's thinking the same thing. But Canada has a long list of retaliatory tariffs that it's prepared to launch if the U.S. goes ahead.
That's why we think of it as a trade war. It's not just an attack. Both sides are firing. Once that starts, it's mutually assured destruction. There's very little chance that either economy will come out of recession soon. So because that's so awful, I like to think we'll get out ahead of that and prevent the worst from happening.
JM:
Okay, Lila, you get the last word. And so will it be an optimistic one like Chris just provided or.
LA:
I believe so, I think, you know, sort of answering the question that you posed to Chris, the the stock market already reacted, right. Even without the imposition of tariffs. We've already seen a reaction from different industries, taking measures to sort of, you know, jump ahead of what could be happening in 30 days. So the impact is already being felt now if the tariffs were actually imposed, like Chris said, I think U.S. consumers, Canadian and Mexican consumers would all feel it right on on the most basic goods that are provided because of the integration of regional supply chains.
I do believe that, you know, reality imposes itself that logic. And, you know, consumer demands and what, Chris mentioned in terms of, inflation and trying to reduce the cost of goods in the United States will sort of, be barriers, right, to impose the tariffs in 30 days from now. That said, again, I do think that tariffs, again, are linked to security and migration.
You can no longer talk about any of these issues in separate buckets. So a lot of this will depend on what the Canadian and the Mexican government are able to deliver in the next month, and how Trump decides, whether it was enough or whether governments were lacking. And the measures that he could take thereof, I think, are yet to be seen.
I am optimistic, but I wouldn't be surprised if we didn't get, you know, the rosy sort of end to to this, North American story.
JM:
Lila. Chris, as always, thank you. I know it's so valuable to our, our viewers and listeners to gain some insights into how Canada and Mexico are thinking about this and approaching it. So your your expertise is really, really appreciated. We hope you enjoyed this edition of Need to Know. And if you'd like to learn more from the Canada Institute or the Mexico instead of you, come to Wilson Center dot Oregon.
You look at the programs tab at the top of the page. You can find all the great work from Lila, Chris and their colleagues. We'll be back with another episode of Need to Know soon. Until then, for all of us at the center, I'm John Milewski. Thanks for your time and interest.
