Since the signing of the North American Free Trade Agreement (NAFTA) in 1992, the United States, Mexico, and Canada have established a long-standing relationship of free and open trade, which was followed by the 2020 United States-Mexico-Canada Agreement (USMCA). However, the past year has seen large changes in trade relations between these three countries, with tariffs rising and rhetoric becoming more heated.
For this roundtable discussion, we interviewed trade experts from all three North American countries to explore how economic identity, trade policy, and public perception have evolved across the continent. Their responses were lightly edited for clarity.
How has your country’s relationship with its NAFTA partners shaped its economic identity over the last few decades?
Dan Mitchell (U.S.): I suspect NAFTA and its USMCA successor have had very little, if any, effect on America’s economic identity. This is not because North American trade is not increasingly important, but rather because very few Americans understand how much trade has expanded and how much economic integration there is between the U.S., Canada, and Mexico. But this lack of awareness is not necessarily a bad thing. It means that the average person does not feel angst about the increased connectedness of North America.
Roberto Salinas (Mexico): NAFTA (then USMCA) has fundamentally changed the evolution of Mexico’s economy. After 30 years of North American integration, the opportunity to “import” the credibility of U.S. and Canadian institutions governing trade liberalization and investment has led to an explosion of three-way trade with both countries, totaling almost $1 trillion USD per annum. This has led to a significant diversification of Mexican exports, everywhere from autos, auto-parts, chips, finished goods, tequila, mangoes, avocado, and much more, dramatically reducing dependence on crude oil, which now represents around 5% of annual sales abroad.
It has also led to an unprecedented increase in imports, including capital goods, refined oil products and finished items, in turn leading to what Thomas Kuhn called a “paradigm shift,” where everyday business concerns have changed from a focus on exchange-rate and macroeconomic instability factors to more on real cost reduction and competitiveness. Mexico’s external sector has become the foundation of sustained growth, and states within Mexico that are NAFTA-linked have experienced much higher growth rates and per capita income than those states that were unfortunately isolated from regional integration. Despite the large differences in GDP per capita, the availability of a wide variety of goods has also led to a change in economic mentality, where competition and consumer choice are not vilified and seen as part of a larger “conspiracy” engineered by Mexico’s northern neighbor—which is part of the unfortunate “anti-gringo” sentiment that prevailed in the 1970s and 1980s. NAFTA has effectively demonstrated how open trade and regional productive investment rules (not subject to the whimsy of autocratic leaders in Mexico) is a win-win proposition. Alas, even AMLO, the consummate illiberal populist, supported NAFTA!
What do you think are the biggest misconceptions people have about how free trade has impacted your national economy?
Dan Mitchell (U.S.): Among ordinary people, the major misconception about trade is the amorphous feeling that a trade deficit is somehow a bad thing and/or that imports are bad for American employment. A simple modification, such as calling it a goods surplus rather than a trade deficit, presumably would change the popular perception. Alternatively, pointing out that an investment surplus is basically a mirror image of a trade deficit would also lead regular people to have a much more positive view. That being said, it is a very positive sign that most Americans understand that international trade is largely a positive thing for the U.S. economy. The real problem in the United States is that the one person who has the most distorted and inaccurate understanding of trade happens to be president of the country.
Roberto Salinas (Mexico): A key concern, especially among political dinosaurs such as AMLO, is that national sovereignty over national ownership of oil would be threatened by private interests—despite the fact that Mexico actually imports most of its refined oil products, especially gasoline, from the U.S. Unfortunately, energy liberalization initiatives that had been implemented in 2014 were victims of a sudden stop during the AMLO regime, leading to a significant crisis in oil production, massive under-investment, and widespread inefficiencies in the state-owned oil monopoly called PEMEX. Many private investments in risk contracts for oil exploration and exploitation are under review in the dispute settlement mechanisms embodied in NAFTA, but the Biden administration’s failure to press on the issue has led to a standstill, which will certainly impact the 2026 review of USMCA. Another rather quaint and ill-founded concern is that the Mexican economy has undergone the “macdonaldization” of the economy, leading to a loss of identity. Younger generations, especially the producers and consumers that have lived under the NAFTA regime, see this claim as bizarre.
Niels Veldhuis (Canada): Thankfully, Canadians are overwhelmingly free traders. Since the 1988 federal election, known as the “Free Trade Election,” Canadians have consistently supported open trade, particularly with the United States. Despite initial political controversy surrounding the Canada-U.S. Free Trade Agreement (FTA), public support quickly solidified. More than 75% of Canadians now say that free trade with the U.S. has been good for our economy. That’s a rare level of consensus on any national policy issue. The concern today is whether actions taken by President Trump, including his tariffs and rhetoric, will erode that consensus.
A Closer Look: United States
Dan Mitchell, president of the Center for Freedom and Prosperity in the United States. Follow him on X @danieljmitchell and learn more about his organization here.
What do you think explains the shift towards protectionism seen over the last eight years? Is this simply a misguided understanding of economics, or are there deeper reasons for this shift?
Dan: The good long-run news is that trade policy has steadily liberalized in the United States since World War II. The bad long-run news is there have always been select businesses and industries that have successfully convinced politicians to impose barriers against their foreign competitors. But at least politicians generally understood that they were doing the wrong thing when they caved to special interest pressure. What’s changed in the last eight years is that Americans elected a president who is a true-believing protectionist.
The bad short-run news is that Donald Trump is genuinely ignorant about trade, and he thinks imports are a loss for the nation and that a trade deficit somehow means the country is being mistreated and abused. However, there is good short-run news in that public support for free trade has increased. Moreover, Trump has performed a political miracle by causing some Democrats to suddenly express support for free trade.
What are some of the less discussed, or less obvious, negative consequences of recent U.S. trade policies, and the volatility and uncertainty that have come along with these policies?
Dan: Economists generally do a good job of explaining why trade barriers are misguided, so no need for me to recycle those arguments. I will focus on two other issues that are connected to Trump’s protectionism. First, there is the risk that China will be an unintentional beneficiary of a destabilized world trading environment. Beijing obviously has a big incentive to seek greater sales to the rest of the world to offset diminished exports to the American market, and the Chinese government presumably will not hesitate to provide export subsidies to achieve that goal.
Second, there is a risk that Trump’s trade war will weaken and undermine the dollar as the world’s reserve currency. There has always been some resentment regarding the U.S. enjoying an “exorbitant privilege” in this regard, and there are plenty of governments who would like to dethrone the dollar. Some of the governments are motivated by hostility to the United States. Others don’t like the way the U.S. uses the dollar’s role as a tool to force the rest of the world to comply with sanctions and extraterritorial regulations. Last but not least, almost every government resents being bullied as part of Trump’s trade war. It is possible these factors will combine in ways that are not good for America.
A Closer Look: Mexico
Roberto Salinas, president of the Alamos Alliance and director of international affairs for the Universidad de la Libertad in Mexico. Follow him on X @rsalinasleon and learn more about his projects here.
Roberto, you were one of the experts consulted when NAFTA was being discussed and eventually passed. What were the concerns then, and how have they changed since its implementation?
Roberto: In Mexico, free trade with the U.S. (and Canada) was seen as a clear and present danger that would lead to the “big fish swallowing the little fish,” given the pronounced economic asymmetries across the three countries and the inability of local producers to compete on an even-level playing field with their regional counterparts. This proved demonstrably false. The concern today is the exact opposite: how abandonment of the long-term institutional certainty embodied in NAFTA (and then USMCA) would lead to a sharp economic downturn, increased unemployment, and yet another “lost decade” of Mexico’s economy. Curiously, there is far more sound and fury in debates on the benefits of North American trade in the U.S. and Canada (trade deficits, the “sucking sound” of jobs fleeing south, cheap labor, etc.) than in Mexico.
How will Mexico’s economy be impacted by these tariffs? Do you see any possible positive effects that can come from this? For instance, starting to enact free trade agreements with other countries.
Roberto: If the tariffs announced on “Liberation Day” (which would better named, as one colleague said to me, “Obliteration Day”) prevail, this would virtually devastate the Mexican economy, given the fundamental role of the external sector in economic growth opportunities. Some voices have stated that Mexico should look elsewhere for such trade arrangements, especially to the south, but this is both ill-grounded and wishful thinking. Mexico already has over 47 trade agreements on all sides of its borders, having followed a policy of multilateral open borders since the late 1980s. The fact of economic reality is that 80% of all trade is with the U.S., and this is a great asset that cannot be surrendered without significant and very painful consequences. If anything, being perhaps unduly optimistic, the crisis of confidence and loss of long-term institutional certainty generated by “today yes, tomorrow maybe not, but perhaps again in 90 days” antics, is that it will force the government of Claudia Sheinbaum to call for a full-fledged reset of USMCA, where Mexico will be forced to acknowledge its breach of duty in sectors such as oil and gas, modified corn, and others. Better yet, if we dare to be a bit Panglossian, Mexico could push towards greater integration, seeking to become part of a larger customs union, with integration of infrastructure, capital markets, human capital, open skies, and even regional rules for immigration flows.
A Closer Look: Canada
Niels Veldhuis, president of the Fraser Institute, Canada’s largest think tank. Follow him on X @NielsVeldhuis and learn more about the Fraser Institute.
What are some of the biggest fears you have about the recent trade wars?
Niels: My greatest fear is that President Trump’s unilateral actions have damaged and potentially jeopardized one of the most unique and longstanding bilateral relationships in the world. For nearly a century, U.S. presidents have recognized the special and enduring relationship between the United States and Canada rooted in friendship, cooperation, and shared values. This unique bond has been reaffirmed through history, from President Truman’s 1947 address to Canada’s Parliament, where he emphasized that the two nations no longer saw each other as “foreign,” to President Kennedy’s iconic 1961 speech declaring that geography made them neighbors, history made them friends, economics made them partners, and necessity made them allies.
President Trump, however, has jeopardized this historic relationship. Many Canadians have deeply soured on our relationship with the United States. Trump’s tariffs, introduced in a manner that has not only disrupted economic ties but also disrespected Canada’s sovereignty, have had a significant impact. Suggesting that Canada could become the 51st U.S. state threatens the nation’s independence and undermines decades of mutual respect. The erosion of this partnership, once celebrated and nurtured by generations of leaders, could have enduring and costly consequences for both nations.
Another concern with the trade war is that President Trump appears to fundamentally misunderstand that trade is a win-win rather than a win-lose proposition. The more Americans and Canadians who buy into this view, the less support there will be for markets, economic freedom, and free enterprise, in general.
Canada has responded to many of the U.S. tariffs with adding their own on the U.S. Why do you think Canada has decided to respond with their own tariffs, and what are some concerns you have with this response?
Niels: Canada’s new Prime Minister Mark Carney and President Trump agreed at the G7 summit in Alberta to attempt to reach a deal on trade and tariffs within 30 days. While Prime Minister Carney has removed some of Canada’s counter-tariffs, he has signalled that his government is prepared to implement retaliatory tariffs if a deal doesn’t come together.
My concern with this approach is that while it might feel good for Canadians to respond to Trump’s trade provocations with retaliatory tariffs, doing so would negatively impact Canadians through increased prices for consumers. In addition, once tariffs are put in place, industries benefiting from them will fight to keep them.
Rather than implementing counter-tariffs, Canada should focus internally on making its economy significantly more competitive than the United States. This includes our energy and natural resource sectors, which, due to burdensome regulations implemented over the past decade, have been unable to build the necessary infrastructure to expand their capacity to deliver products to other markets, including Europe and Asia. This should be our focus and one of the top responses to Trump’s economic attack on Canada.
Thank you to our roundtable participants:
Dan Mitchell is President of the Center for Freedom and Prosperity, a pro-market public policy organization he founded in 2000. His major research interests include tax reform, international tax competition, the economic burden of government spending, and other fiscal policy issues. Having also worked at the Heritage Foundation and Cato Institute, he has decades of experience authoring papers, writing editorials, working with the public policy community, and presenting the free-market viewpoint to newspaper, television, and radio media. The co-author of The Greatest Ponzi Scheme on Earth and Global Tax Revolution, Dan has spoken to a wide variety of groups in more than 40 states and more than 70 foreign countries. He also served on the editorial board of the Cayman Financial Review and holds a Ph.D. in economics from George Mason University.
Roberto Salinas León is Director of International Affairs for the Universidad de la Libertad in Mexico City. He is also president of the Alamos Alliance, an annual economic and policy symposium that gathers leading figures in economics and public policy from Latin America and around the world. A frequent columnist and commentator for media outlets in the U.S. and Latin America, he has published more than 2,000 editorials (English and Spanish). He has delivered over 1,000 public lectures, including testifying before the U.S. Congress on three occasions. He was named among Mexico’s group of 300 leaders by Líderes Mexicanos. He is senior fellow for Latin America at the Atlas Network, senior debate fellow and debate lecturer at the Calvin Coolidge Presidential Foundation, and an adjunct fellow of the Cato Institute. He holds a B.A. in political economy, history, and philosophy from Hillsdale College and an M.A. and Ph.D. in philosophy from Purdue University.
Niels Veldhuis serves as President of the Fraser Institute, Canada’s most influential think tank. With nearly 25 years in public policy, Niels has authored six books and more than 50 peer- reviewed studies on a wide range of economic issues. His commentaries have been featured in over 50 media outlets, including The Globe and Mail, Wall Street Journal, National Post, and The Economist. A frequent speaker across North America, Niels is known for making complex economic issues accessible. He has moderated and shared the stage with global leaders, including U.S. Presidents Bill Clinton and George W. Bush, Prime Ministers Stephen Harper and Brian Mulroney, and renowned journalists like Chantal Hébert and Andrew Coyne. Niels is an alumnus of Simon Fraser University, a Top 40 Under 40 recipient, an active member of YPO, and currently serves as Regional Chair for YPO in Canada.
