Mexico, Canada: North American Partners in Growth

Mexico and Canada share a robust and evolving bilateral relationship that spans more than eight decades. In 2025, this partnership continues to deepen, with both nations engaging across political, economic, cultural, and social spheres. Rooted in shared democratic values and regional cooperation frameworks, Mexico and Canada have not only forged a solid diplomatic connection but have also expanded their ties through vibrant trade relations, strategic investments, and dynamic people-to-people exchanges.

Formal diplomatic ties date back to 1944, but the trade relationship accelerated with the implementation of NAFTA in 1994. The 2020 transition to USMCA refreshed this regional partnership with modern provisions for digital trade, labor protections, and automation of origin rules. Though coverage remains trilateral, Mexico and Canada increasingly trade and invest directly, shaping their economic futures and shared prosperity.

Trade Volume and Composition

Since the entry into force of NAFTA, economic ties between Mexico and Canada have grown substantially. This momentum has been sustained and modernized under USMCA, which reinforces trade while incorporating updated provisions for labor rights, environmental standards, and digital commerce.

In 2024, two-way merchandise trade between Canada and Mexico reached nearly US$56 billion. Mexico remains Canada's third-largest single-country merchandise trading partner after the United States and China. Conversely, Canada was Mexico’s fifth-largest trading partner in 2024. Canadian Direct Investment in Mexico stood at US$46.4 billion, making Mexico Canada’s ninth-largest destination for foreign direct investment (FDI). Mexico’s growing consumer base, competitive labor costs, and political stability continue to attract Canadian businesses, particularly in manufacturing, services, mining, and infrastructure.

Mexico’s main export to Canada in 2024 was passenger vehicles and other automobiles designed primarily for the transport of people, totaling US$4.872 billion. The principal exporting regions in Mexico were Mexico City (US$6.458 billion), Puebla (US$2.326 billion), and Nuevo Leon (US$1.391 billion).

Mexico’s primary import from Canada in 2024 was parts and accessories for motor vehicles, amounting to US$1.628 billion. The leading importing states were Mexico City (US$4.023 billion), Nuevo Leon (US$1.103 billion), and the State of Mexico (US$1.030 billion).

Between January and December 2024, FDI from Canada to Mexico reached US$3.216 billion. The states that received the most Canadian FDI during this period were Mexico City (US$1.570 billion), Veracruz (US$158 million), and Queretaro (US$155 million).

In 2024, the Mexican states with the highest trade surplus (exports minus imports) with Canada were Mexico City (US$2.496 billion), Puebla (US$1.728 billion), and Guanajuato (US$1.058 billion).

Between January and December 2024, Canadian FDI in Mexico amounted to US$2.595 billion. This investment was divided among profit reinvestment (US$1.756 billion), intercompany accounts (US$636 million), and new investments (US$204 million).

Between January 1999 and December 2024, Mexico received a total of US$56.847 billion in Canadian FDI. This total comprises US$20.056 billion in intercompany accounts, US$19.128 billion in reinvested earnings, and US$17.662 billion in new investments. Historically, from January 1999 to December 2024, the Mexican states that received the highest levels of Canadian FDI were Mexico City (US$8.682 billion), Zacatecas (US$6.764 billion), and Chihuahua (US$5.265 billion).

USMCA, Uncertainty, Negotiations

USMCA updated and modernized NAFTA, introducing chapters on digital trade, environmental standards, anticorruption, and SME participation. It mandated a 16-year duration with a mandatory performance review at year six (2026), allowing for adjustment or renewal.

Persistent issues include: uneven implementation of USMCA rules, contiguous dispute-settlement mechanisms, and tensions over regional content methodology in autos. Mexico and Canada have jointly challenged US interpretations in dispute panels.

Political volatility, especially in US rhetoric around trade, immigration, and drug policy, has threatened North American stability. Repeated US tariff threats — often inconsistent with USMCA — have created uncertainty for Canada and Mexico.

In early 2025, US President Donald Trump revived tariff threats under the argument of protecting US industries. As of August 2025, the US government has imposed a 35% tariff on Canadian goods while granting a 90-day extension to Mexico before applying similar measures. These unilateral decisions, outside the institutional mechanisms of USMCA, have heightened trade tensions and introduced a new layer of unpredictability to North American trade relations.

In parallel, the unresolved energy dispute between the three countries under USMCA adds further strain. In 2022 the United States and Canada  formally accused Mexico of violating the treaty’s fair competition provisions by favoring state-owned energy firms over private and foreign companies. Although consultations and dispute resolution processes have been initiated, no resolution has been reached. The persistence of this issue undermines investor confidence and casts a shadow over the upcoming 2026 performance review, when the treaty’s renewal or renegotiation will be considered.

The Road Ahead

Despite uncertainty, Mexico–Canada relations are based on mutual respect and support. Educational and cultural cooperation continue to expand, with over 300 memorandums of understanding (MOUs) in place between Canadian and Mexican higher education institutions. As of the end of 2024, nearly 15,000 Mexican students held study permits in Canada, making Mexico the leading source of international students from Latin America. An additional 9,000 students participated in short-term language programs that year. These exchanges contribute to long-term bilateral understanding and workforce development.

Mexico and Canada also collaborate on broader regional and global issues. At the North American level, both countries engage with the United States through the North American Leaders’ Summit to address competitiveness, environmental challenges, and continental security. In multilateral forums such as the United Nations and the Organization of American States, Mexico and Canada often align in advancing democratic governance, sustainable development, and human rights.

Canada also supports Mexico’s institutional capacities through strategic programming, such as the Anti-Crime Capacity Building Program, and through security consultations and defense dialogues.

Mexico–Canada trade relations are a strategic pillar of North American economic integration. USMCA has opened new opportunities in trade, investment, labor mobility, and digital commerce. Despite challenges in enforcement and political ambiguity, the partnership remains resilient. As both nations prepare for the 2026 mid-term USMCA review, their continued alignment and surging trade volumes offer a compelling case for deepening cooperation and innovation across sectors.