Could a U.S.

Mexico and the United States are moving quickly toward an interim trade deal, raising an awkward question for Ottawa: Could Canada be left on the outside of its own North American trade pact?

Reuters reported Friday that negotiators in Washington and Mexico City are trying to reach a bilateral agreement before the Nov. 3 U.S. midterm elections. Mexico could win relief from some U.S. tariffs while making concessions on issues including automotive content and Chinese investment.

The push follows the collapse of Canada's negotiations with Washington last month and an escalating tariff dispute between the two countries. One auto industry source told Reuters the Trump administration may be looking to reach a Mexican deal first as a way of isolating Ottawa.

But Drew Fagan, a professor at the University of Toronto's Munk School of Global Affairs and Public Policy, says the danger of Canada being meaningfully isolated may be smaller than the optics suggest.

A deal with Mexico could sting politically

Asked how much a separate U.S.-Mexico deal would weaken Canada's negotiating position, Fagan's answer was straightforward.

"I guess, only to a minor extent," he told Yahoo News Canada.

A separate agreement could create "challenging politics" for Ottawa, Fagan said, particularly if Mexico accepts something close to terms Canada turned down.

He expects less of a shift underneath that.

"But the economic impact will be more limited, and the negotiating impact, frankly, more limited," Fagan said.

There is also a difference between Washington cutting an interim deal with Mexico and CUSMA itself breaking apart.

The three-country agreement remains fully in force until 2036. Canada, the U.S. and Mexico did not agree in July to extend it for another 16 years, meaning joint reviews can now take place annually until the parties agree to an extension or the pact expires. Canada has said it remains committed to preserving and renewing CUSMA.

Canada's economic position has also shifted since talks with Washington collapsed

Ottawa is now accelerating efforts to diversify beyond the U.S., with Prime Minister Mark Carney and European Union leaders discussing what they describe as a much deeper economic and strategic alliance. European Commission President Ursula von der Leyen has even floated Canada becoming the EU's first "associate member," though what that status would actually entail has yet to be defined.

The relationship already has significant economic weight. The EU is Canada's second-largest trading partner for goods and services after the United States, with bilateral trade reaching $178.6 billion in 2025. Canada-EU exports also grew sharply last year.

That doesn't replace Canada's deeply integrated relationship with the U.S. or remove the risks of Mexico receiving preferential treatment. But it does mean Ottawa is entering the next stage of North American negotiations while actively building alternatives elsewhere, a different economic backdrop than when Canada-U.S. talks broke down last month.

North American trade already has bilateral roots

Bilateral negotiations aren't new to the current review either.

The U.S. and Mexico have held several negotiating rounds this year on autos, steel and aluminum, rules of origin and economic security, all under the broader CUSMA review process. USTR described those talks as bilateral negotiations related to the joint review.

Fagan argues that the North American system has always contained strong bilateral relationships.

"The reality of NAFTA, and then, you know, for the last few years, CUSMA, USMCA, is there are three relationships: U.S.-Canada, U.S.-Mexico, and Canada-Mexico," he said.

There is history behind that structure. The U.S.-Canada Free Trade Agreement was already in force when Washington began bilateral negotiations with Mexico in 1991. Canada subsequently joined those talks, leading to NAFTA.

That doesn't mean a U.S.-Mexico deal would be harmless for Canada.

Autos may provide the clearest test. Canadian and Mexican vehicles currently face a 25 per cent U.S. tariff under Section 232 measures. Reports suggest some automakers believe Washington could offer Mexico a 15 per cent rate, potentially reduced further depending on U.S. content.

If Mexico gets relief while Canadian tariffs remain in place, the competitive pressure on Canadian producers would be harder to dismiss.

Fagan said the details of any agreement, particularly the auto provisions, will matter.

He also believes Washington is testing the two relationships separately.

"So they're playing the two off against each other," Fagan said.

Still, he argues there is only "limited leverage in playing one off against the other."

Closer Canada-Mexico coordination would be preferable, he said, but there are limits to how far either government can be expected to subordinate its own interests.

For Ottawa, that makes a U.S.-Mexico deal uncomfortable, and potentially costly for certain industries, without necessarily amounting to Canada being shut out of North American trade.

For now, CUSMA remains intact. The bigger question may be what deal Washington ultimately offers each of its two neighbours.