Last Updated on December 5, 2025 by Chicago Policy Review Staff
The North American trade relationship faces a major test. In early 2025, President Trump announced tariffs on imports from Mexico and Canada, citing irregular immigration, drug trafficking, and trade imbalances. Mexico faces a 25% tariff on all goods, while Canadian oil and energy exports endure a 10% tariff. These actions have provoked intense reactions from both countries, signaling a new era of trilateral tensions.
Sheinbaum’s Strategy: Staying Cool Under Pressure
Claudia Sheinbaum, Mexico’s president and the first woman to hold the office, has approached this crisis with strategic patience. Instead of retaliating with her own tariffs, she has focused on negotiations. Her “cool-headed” approach aims to prevent an all-out trade war while protecting Mexico’s key industries, such as auto manufacturing, which now represents 20.2% of the nation’s GDP, second only to the food industry at 20.7%, and generates a net revenue of $100 billion.
Trump’s tariff threats are not new. In his first term, he pressured Mexico to accept the “Remain in Mexico” program, resulting in about 60,000 immigrants waiting in Mexico for asylum decisions.
This time, by threatening to designate Mexican cartels as terrorist organizations, Trump has again secured cooperation from Mexico—this time in the form of high-profile extraditions of cartel leaders. In February, Sheinbaum’s government transferred 29 cartel figures, including Rafael Caro Quintero, to the United States, signaling Mexico’s willingness to appease Washington’s demands on security.
The question now becomes: How much further is Sheinbaum willing to go? With nearly four more years of Trump’s presidency ahead, will Mexico continue making concessions, or will Sheinbaum eventually draw a line?
Trudeau’s Counterattack: No Patience for Tariff Games Amid Political Uncertainty
Canada, on the other hand, has taken a much firmer stance. Prime Minister Justin Trudeau swiftly responded with 25% tariffs on $20.6 billion worth of U.S. goods. His government made it clear: Canada will not be bullied.
In direct response to new U.S. tariffs on Canadian steel and aluminum, the Canadian government called these actions “unjustified and unacceptable.” Former Deputy Prime Minister and Finance Minister Chrystia Freeland emphasized that these measures violate trade commitments under the USMCA and harm workers on both sides of the border. Ottawa has countered with targeted tariffs on U.S. steel, aluminum, and consumer goods, aiming to maximize pressure on American industries while protecting Canadian businesses as much as possible.
Canada is also pursuing a dual-track strategy—retaliation alongside diplomatic pressure. Trudeau’s administration is rallying support among U.S. lawmakers, particularly in states dependent on Canadian trade, to challenge the tariffs from within the American political system. This approach signals that while Canada is willing to fight back economically, it also sees value in using diplomacy to bring about a resolution.
However, Canada faces internal political uncertainty with the departure of Trudeau. His upcoming departure raises questions about the future direction of Canada’s trade policy and its ability to maintain a strong stance against U.S. pressure. Conservative politicians, including those aligned with Marco Rubio’s recent diplomatic outreach, may shift Canada’s strategy depending on the leadership transition. The absence of a stable leadership plan could weaken Canada’s position in ongoing trade negotiations and embolden Washington to push for further concessions.
What’s at Stake?
The escalating tensions present significant risks to North America’s economy. Supply chains that have operated seamlessly for years are now under threat. Businesses across all three countries—primarily in manufacturing and agriculture—are facing rising costs and economic unpredictability. The uncertainty surrounding the future of the USMCA could result in North American economies losing up to $300 billion in trade over the next five years. The auto industry, a vital sector for all three countries, could see a 12% decline in cross-border production due to disrupted supply chains and increased compliance costs. The USMCA faces unprecedented challenges as some aspects remain contentious and will likely be renegotiated during the pact’s review 2026.
The differences in approach between Mexico and Canada also highlight the challenge of dealing with an unpredictable U.S. administration. Mexico is trying to keep the doors open for negotiation, while Canada is taking a hard line. Which strategy will be more effective? The coming months will tell.
The Road Ahead
For North America, this is a moment of transition. The leaders of Mexico and Canada must decide whether to continue fighting back or seek a path to negotiation. Meanwhile, American businesses and consumers will feel these tariffs’ effects, potentially putting pressure on the U.S. government to reconsider its policies stance.
At its core, this is not merely a trade dispute—it’s a test of North America’s ability to cooperate in an increasingly unpredictable global economy. Whether through diplomacy or economic retaliation, the decisions made now will influence the region’s future for years to come.