The Trade Zone

In this week’s edition: Three areas where Canada and Mexico can deepen ties, how one smart idea can help alleviate canola farmers’ China challenge, and why infrastructure, not policy, may be holding us back.

How to reset things with Mexico

By Jordan Brennan, RBC’s Head of Thought Leadership

Six months into President Trump’s trade war, with no deal in sight, Canada has good reason to deepen its partnership with Mexico. (And, based on a couple of recent trips south, the federal and Alberta governments agree).

Despite being Canada’s third largest trading partner, Mexico accounts for less than 4% of Canada’s global merchandise trade, the bulk of which is imports. In 2024, Canada shipped just $9 billion of goods to Mexico while importing $47 billion of Mexican goods.

Make no mistake, no country can displace the U.S. when it comes to trading significance for Canada. But we see three broad areas where Canada and Mexico can deepen ties.

• Build Bridges & Infrastructure. Canada’s ‘Maple Eight’ pension funds, with north of $2 trillion in assets, are among the largest in the world and possess expertise in major infrastructure projects like pipelines, rail and port capacity. That’s what Mexico needs: patient capital with financing expertise. Canadian capital is a source of financial influence that could be leveraged to advance geopolitical and trade interests, and enhance commercial ties. Canadian Pacific Kansas City Rail’s investment in the Patrick J. Ottensmeyer International Railway Bridge—a $100M project launched earlier this year that deployed innovative technology to improve continental cargo mobility on the U.S.-Mexico border—is a case in point.   

• Boost Bilateral Trade. Many of Canada’s export industries—from energy to steel and aluminum, copper, agri-food, softwood lumber, pulp and paper, and plastics—are products the 130-million strong nation imports. Enhanced trade flows, underwritten by the current CUSMA, could help several of our stressed industries find relief.

• Unite On CUSMA. While the U.S. will remain the cornerstone of North American trade, both Canada and Mexico must prepare for the joint review of the CUSMA, which is officially scheduled for 2026 but may come sooner. Rather than being played against one another, which Trump has successfully orchestrated until now, diplomatic coordination between Canada and Mexico could affirm treaty mechanisms, ensuring duty-free access for CUSMA-compliant goods. Trade irritants in specific industries (think supply management) and trans-shipment for Chinese goods must be managed. With trade nested in a broader framework that includes border security, defence, infrastructure, and supply chain integrity, all three countries can be made better off by deepening their cooperation, ensuring balanced and mutually beneficial trade across the bloc.

The week in trade

• China tariffs on Canadian canola seed exports have prompted calls on the government to limit imports of vegetable oil. Conservative Leader Pierre Poilievre is also demanding the Carney government cancel a $1-billion loan BC Ferries is using to buy Chinese-built vessels.

• China also filed a lawsuit over Canada’s import restrictions on steel.

• The Ontario government is introducing a $1 billion emergency loan program to qualifying businesses in the steel, aluminum, and auto sectors impacted by U.S. tariffs.

• Trade war ripples start to show in U.S. wholesale prices, which were up 3.3%in June YoY, the biggest jump since February.

• As it looks to reshore some of its manufacturing–and create 1,000 U.S. jobs–GE Appliances is investing $3-billion in its U.S. factories over the next five years.

Canola in the crossfire

By Yadullah Hussain, Managing Editor, RBC Thought Leadership

Canada’s canola crisis has deepened. Beijing’s 75.8% duty on Canada’s most valuable crop comes after its preliminary investigation found Ottawa provided subsidies and preferential treatment to its farmers.

The levy on canola seeds adds to Beijing’s 100% tariffs already in effect on Canada’s canola oil and meals. Back in April, the Canadian Canola Growers Association (CCGA) told us that farmers were freezing investments over fears that a tariff on canola seeds was the “big shoe to drop.” Chris Davison, President and CEO of the Canola Council of Canada, now believes the Chinese market is “effectively closed” to Canadian canola producers.

That’s another $4.5 billion of commodity trade disrupted and now in search of new, tariff-free markets, joining lumber, aluminum and steel.

Here’s how Canada’s canola crisis is playing out:

• Squeezed by two economic giants: Could Beijing be trying to get Ottawa to remove the 100% tariffs on Chinese EVs, and 25% on Chinese steel and aluminum? Beijing will make a final call on canola seed duties in September. But Ottawa is in a bind as it had raised tariffs on imported aluminum and steel to appease Washington’s concern that countries, including China, were Canada as a backdoor to the U.S. market.

• Meal plan goes awry: China’s canola meal imports from Canada whittled down to 32,506 tonnes in June—from 141,938 tonnes in June 2024—Statistics Canada data shows.

• Oil turmoil: Canada’s canola oil exportsto China amounted to a big fat zero from China in June, industry data shows.

• Seed money: Canada’s canola seed shipment to China had fallen to 237,897 tonnes by June 2025, compared to 651,080 tonnes during the same period last year.

• Farmers want a cash injection: Farmers should not be asked to borrow their way through a crisis that’s not of their making, the CCGA states. Although that would only exacerbate Beijing’s concerns of Ottawa subsidizing the industry.

Beijing’s concerns of Ottawa subsidizing the industry.

• Ease the pain: Boosting domestic demand and processing capacity of biofuels like Sustainable Aviation Fuel (SAF) presents one opportunity to diversify canola demand as a biofuel feedstock. According to Lisa Ashton, our Agriculture Policy Lead: “Canada should consider looking at other countries’ playbooks for expanding domestic biofuel markets and agriculture’s role in its growth.” Brazil, Japan, and Malaysia are all expanding processing capacity for biofuels including SAF and increasing required biodiesel and ethanol blends in convention fuels.

“Our limitation is not policy, but infrastructure”

Jordan Brennan, RBC’s Head of Thought Leadership, recently connected with Trevor Tombe, at the University of Calgary’s School of Public Policy.

Q: What can the federal government do to lessen our dependence on the U.S.?
A: We face significant constraints. Canada’s ability to expand trade with other countries through trade agreements is largely exhausted. India and China, for geopolitical reasons, are unlikely prospects in the near term. Our limitation is not policy, but infrastructure. Geography remains a stubborn fact that requires substantial infrastructure investment. Expanding upon our rail and port infrastructure is a renewed priority federally but will take many years to move the needle.

Q: What do you see as the long-term impact of Trump’s tariff wars globally?
A: The uncertainty from tariff threats alone dampens investment. That itself may lead to a permanent reduction in Canadian productivity if investors perceive a higher level of risk in Canada due to uncertain market access in the U.S. Globally, if there’s one lesson from the 1930s, it’s that protectionist spirals deepen economic pain for all participants. While tariffs might temporarily boost some U.S. industries, the costs to global efficiency and consumer welfare would be substantial.

Q: Are there any new insights that challenge the prevailing wisdom about the broad-based benefits of free trade?
A: The fundamental case for liberalized trade remains strong. But it requires resources, production, and employment to shift across sectors and regions. Some of my work suggests between 1-2% of Canada’s workforce could migrate across provinces in response to eliminating internal trade costs. While these moves are productivity-enhancing for the overall economy in the long run, there are adjustment costs for individuals and some affected businesses impose significant short-term costs on those individuals.

Related: Read Brennan and Tombe’s discussion on interprovincial trade barriers.

Bottom line

Canada imported $43.4 million of distilled spirits from the U.S.—that’s down 62% June YoY. American wine imports were also down 67%.