North American manufacturing is suffering under the strain of tariffs

WASHINGTON, D.C. — The North American Free Trade Agreement was forged in the 1990s with the notion that greater manufacturing integration between Canada, the United States, and Mexico would benefit all three countries.

But U.S. President Donald Trump, who blamed NAFTA for the loss of U.S. factories, trade deficits with neighbours, and pressure on blue-collar wages, saw it as “the worst trade deal ever.” So he renegotiated to create the Canada-U.S.-Mexico Agreement in 2020, with tougher rules favouring North American production, stronger labour protections, and digital age updates. His administration was so pleased with the result that they deemed CUSMA the “gold standard” of free trade agreements.

“[CUSMA] was critically important because NAFTA became … a piñata,” said Antonio Ortiz Mena, chairman of the Mexican Foreign Trade Council (COMCE)’s USMCA Committee and a professor at Georgetown University, at the 2026 Citi USMCA Forum in Washington on Wednesday.

“Every presidential election, there was a tradition to bash NAFTA on both sides of the aisle,” he explained, noting that it was funny at first but got more serious as uncertainty grew around the rules of trade and investment. 

CUSMA resolved all that, providing a level playing field with rules and predictability about costs so businesses could make decisions and move forward. 

Since 2020, CUSMA has been heralded as an overwhelming success for all three countries, with the value of total trade between them hitting a whopping $1.9 trillion in 2024, a $400 billion increase, according to Citi’s new report “The Enduring Power of Three.” The National Association of Manufacturers, meanwhile, credits CUSMA with boosting “American manufacturing to unparalleled levels — nearly $3 trillion in 2024.” 

The CUSMA’s stricter rules of origin — 75 per cent North American content for autos and 70 per cent for steel and aluminum — helped strengthen U.S. manufacturing. 

Texas Republican Sen. John Cornyn spoke at the Citi forum about the benefits he’s seen from the trade pact for the Lone Star State. 

“The Texas auto industry has flourished, adding $19 billion to our state’s GDP in 2024 and supporting more than 50,000 jobs.”

“Texas is now responsible for 11 per cent of US auto exports,” he added, “and I’m sure that number will continue to grow in the years ahead.”

Trump took office promising to reindustrialize America, but his tariffs have raised costs on intermediate goods from abroad, forcing firms to raise prices, and in some cases, slow production and lay off workers. 

Tariffs, combined with the threats about the upcoming CUSMA review process, have dampened manufacturing and trade by reintroducing the uncertainty it was created to quash.

In the second quarter last year, Canada’s exports declined by just over 10 per cent, fuelled by an 18.7 per cent plunge in exports to the U.S., according to Global Affairs Canada, with drops felt across most sectors. AI, and the advent of data centres to support the technology, was a notable exception.

U.S. factories also took a hit, with manufacturing jobs dropping by between 70,000 and 100,000 last year amid the higher production costs.

Brighter news emerged this week, though: The ISM index rose despite tariff-driven input costs, jumping from 47.9 to 52.6 in January.

The jump in orders, said Rebecca Patterson, senior fellow at the Council on Foreign Relations, suggests a possible trend reversal, but it doesn’t mean that manufacturing is out of the woods.

“If you look at comments from respondents to the survey, they remain quite downbeat, and partly because of rising input costs,” she said. “So the relative uptick in sentiment, I think, should be taken with a grain of salt.”

Andrew Hale, fellow at Washington-based Advancing American Freedom, agreed, noting that more time is needed to assess whether January’s boost was simply a reflection of post-holiday reorders or a genuine pattern.

He pointed out, however, that manufacturing prices have been rising for 16 consecutive months, and the production gains have not translated to job gains.

“The manufacturing employment index,” he noted, “contracted for the eighth consecutive month in January.” 

And despite Trump’s efforts to reindustrialize America, Hale said there has been no uptick in new factory construction, in fact, spending on that was down 20 per cent over the past year despite historic deregulation.

“Manufacturing should be booming,” Hale said, pointing to Trump’s deregulation efforts. “But the tariffs are stifling that potential boom. That is the bottom line.”

Since last spring, tariffs on Canadian steel, aluminum, and vehicles have raised the cost of production on both sides of the border — a frontier that sees parts for the average car cross over up to eight times, such is the level of integration.

As a result of trade policy uncertainty over the past year, some Canadian and U.S. auto manufacturers have been hitting the brakes. Between 85 and 90 per cert of Canadian-made vehicles are exported to the U.S., so the tariff uncertainty is directly challenging the health of the sector.

Auto giants, including General Motors, Stellantis, and Ford, have idled plants in Canada. 

Toyota and Honda, Canada’s two largest automakers, have remained up and running and fully staffed, said David Adams, president and CEO of Global Automakers of Canada. But he noted that the tariffs have raised their costs, some of which are absorbed by the car giants while some are passed on to consumers. 

Earlier this week, Adams noted that the Canadian auto sector has also been in “wait-and-see mode” over former prime minister Justin Trudeau’s EV mandate. That clarification came on Thursday, with Prime Minister Mark Carney’s new auto strategy, which nixed the mandate for 60 per cent of light-duty vehicle sales in Canada to be ZEVs by 2030. 

After the announcement, Adams issued a statement reacting to Carney’s new strategy. 

“We are pleased that the government has provided greater clarity on issues such as Electric Vehicle Availability Standard,” he wrote, also nodding to EV incentives and plans to build out the charging infrastructure. 

“These are issues for which we have long sought direction from government and should give Canadians more choice, improve affordability, and make electrified vehicles more accessible.”

Flavio Volpe, president of the Automotive Parts Manufacturers’​ Association, said Trump’s trade policy is punishing American companies’ production in Canada. 

“You’re hurting General Motors in Oshawa, but also GM American suppliers.” 

In the U.S., meanwhile, no major plants have been idled, but several production facilities for EV-related battery production have been delayed or even canceled. New plants are not coming online, and thousands of jobs have been cut in the industry since Trump’s second term began.

Representatives from GM and Caterpillar were on hand for the Citi forum focused on CUSMA, and both stressed the need to update the agreement as needed and to renew it to assure continued success for the North American auto sector.

“I think there’s a lot of low-hanging fruit by comparison to some of the bigger issues we’ve been dealing with all year,” Amanda Farrell, senior counsel at GM, said. She noted that some technical improvements, such as adjustments on compliance and the streamlining of new technologies, “would be meaningful improvements, commercially meaningful improvements.”

Katie Hays, director of federal and international government affairs for engine equipment giant Caterpillar, said she hopes to see significant movement on the Section 232 tariffs impacting the prices of steel, aluminum, and parts during the CUSMA review to preserve duty-free access. She would also like to see “gold standard” provisions like remanufacturing to support circular manufacturing and jobs.

Farrell perhaps said it best when she pointed out that supporting Trump’s vision for a strong North American auto sector can and should be done through CUSMA. 

“It is the best platform to address issues as a North American bloc – as Fortress North America.” 

National Post

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