Outline
In this changing world Canada does
not have the issue whether to side with the US or China, but how to expand
economic options without undermining alliance stability and the previous trade
arrangements. Though Canada is economically and militarily integrated with the
United States to a degree unmatched by any other G7 country, it has to diversify
its trade and investment with a lot of uncertainty hanging over its head.
Mexico and Argentina offer insightful
and instructive, though imperfect, comparators. Both have deepened economic
ties with China while maintaining meaningful relations with the United States.
Their experiences suggest that dual engagement is possible — but only under
clear guardrails and within structural limits.
This paper evaluates “success”
across several measurable dimensions: the ratio of exports and imports in GDP,
the ratio of FDI in GDP, the ratio of net debt in GDP, debt service ratio, and
trade diversity in regions, among other indicators. After discussing both
Mexico and Argentina, it concludes that Canada can adopt sectoral
compartmentalization, transparent screening mechanisms, and strategic
supply-chain positioning from Mexico’s model, while drawing selective lessons
from Argentina’s resource diplomacy and currency swap arrangements. However,
Canada cannot replicate Mexico’s manufacturing strategies lest it be retaliated
by the US with potential great economic damages. Clear guardrails are
essential.
Given Canada’s geography and economic integration
with the U.S., concentrating more heavily on Mexico makes analytical sense.
However, with the present American tariff threat and Trump’s words on the Gordi
Howe Bridge as well as his attitude towards China, and with the metrics
compared by the writer, Argentina remains a better comparator for trade balance
between imports and exports, a small debt reliance, industrial autonomy and
resource diplomacy, among other indicators.
In this article, measurable indicators of success
are examined and explored. Secondly, the cases of Mexico and Argentina are
discussed. Thirdly, a comparison will be made. Fourthly, the writer will look
at what Canada can do and what it cannot do and some guardrails it should have.
I.
Defining “Success” in Managing Two Great Powers
To move beyond anecdote, success
must be measurable. This paper evaluates cases using several indicators (along
with others):
- Share of exports and imports to
the U.S., China,
and the rest of the world to look
at how diversified the country is in terms of regions (IMF Direction of
Trade Statistics; World Bank WITS; national statistical agencies)
- Balance between Imports and Exports to
look at how balanced imports and exports could be because a great gap
may mean trade friction and potential inflation or deflation problems
- Percentage
of FDI in GDP to
look at the scale of direct investment in the economy
- Debt
Metrics to
look at the percentage of net debt in GDP and how exports can cover the
debt including both the principal and the interest
- Industrial
Autonomy to
look at how fragile the country can be when the industry cannot rely on
foreign countries
- Trade
Diversity in Regions to look at how incidents of one or two
countries may affect the country seriously
II.
Canada’s Structural Constraints
Canada’s trade profile illustrates
the depth of integration with the United States:
- Roughly 75% of Canadian merchandise exports go
to the U.S. (Statistics Canada; IMF DOTS).
- China accounts for approximately 4–5% of exports,
but around 10–12% of imports, reflecting supply-chain asymmetry.
- Canada is embedded in USMCA, NATO, NORAD,
and the Five Eyes intelligence alliance.
Unlike Mexico or Argentina, Canada
is a G7 country with high regulatory standards, advanced services exports, and
strong national security screening mechanisms (Investment Canada Act).
These structural realities narrow
the policy space but do not eliminate it.
III.
Mexico: Deep Integration with the U.S., Expanding Trade with China
1.
Export Structure and Diversification
Mexico sends approximately 80% of
its exports to the United States (INEGI; World Bank). It became the largest
U.S. trading partner in 2023 according to U.S. Census Bureau data.
Yet China is Mexico’s second-largest
trading partner, and its largest source of imports (around 18–20% depending
on the year). These imports are heavily concentrated in intermediate goods —
electronics, machinery, components — that feed into exports to the U.S.
Mexico’s diversification strategy is
therefore asymmetric:
- Exports remain U.S.-centered.
- Imports are diversified, with China critical to supply
chains.
Outcome: Mexico has leveraged U.S.–China tensions to attract
nearshoring investment, benefiting from U.S. firms relocating supply chains
under USMCA preferences (OECD; Inter-American Development Bank analyses). Also,
Mexico’s recent 35-50% tariffs on Chinese goods (textiles, EVs, agricultural
products, etc.) makes it vulnerable to retaliation from China.
2.
FDI and Sectoral Controls
Chinese FDI in Mexico remains modest
compared to U.S. investment, but trade integration is significant. Mexico has
not signed a free trade agreement with China, nor has it permitted large-scale
Chinese control of strategic infrastructure.
Sensitive sectors — energy, telecom
infrastructure linked to national security — remain tightly regulated.
Outcome: Mexico maintains high alliance stability with Washington
while sustaining strong commercial trade flows with China.
3.
Policy Autonomy
Mexico has occasionally diverged
from U.S. rhetoric on China but has largely aligned on trade remedy measures
and supply chain security.
Assessment: Mexico demonstrates that a country can remain
overwhelmingly U.S.-aligned while benefiting from trade complementarities with
China — provided strategic sectors are clearly bounded.
IV.
Argentina: Financial Hedging and Resource Leverage
Argentina offers a different model:
less integrated with the U.S., more macro-economically fragile, but more
flexible diplomatically.
1.
Trade and Investment Patterns
China is Argentina’s second-largest
trading partner, particularly for soybeans and beef (IMF DOTS; Argentina
customs data). Chinese firms have invested heavily in lithium and infrastructure
projects (UNCTAD; Reuters reporting). However, textile and toys imports from
China account roughly 70% and 85% in Argentina’s imports in 2025, which should
be alerted[i].
Argentina simultaneously maintains
agricultural exports to the U.S. and cooperation on critical minerals.
2.
Currency Swap and Financial Hedging
Argentina has repeatedly renewed a
currency swap line with the People’s Bank of China, reportedly valued in
headline terms at over US$18 billion (Reuters; Argentine central bank
statements). Portions have been activated to bolster foreign reserves and
improve liquidity during IMF stabilization programs.
From a macroeconomic standpoint,
Argentina has experienced chronic inflation (over 100% in 2023 per IMF WEO),
reserve shortages, and debt stress.
Outcome: The swap line enhanced short-term liquidity, and cushioned
the foreign exchange shortage.
3.
Alliance Stability and Limits
Argentina is not a treaty-bound
military ally of the United States in the way Canada is. Its strategic
alignment costs are therefore lower.
While Argentina has engaged the U.S.
on critical minerals cooperation, it has not faced the same security
integration constraints as Canada. Argentina seeks closer U.S. alignment in
security relevant areas such as critical minerals governance and broader
Western integration, indicating that economic pragmatism toward China is nested
inside an overarching Western orientation. This mix has delivered short term
macro relief when need arises.
Assessment: Argentina illustrates that resource leverage and financial
diversification can coexist with U.S. engagement.
V.
Comparative Evaluation
|
Indicator |
Canada |
Mexico |
Argentina |
|
U.S. export dependence |
~75% |
~80% |
<10% |
|
China export share |
~5% |
~2–3% |
~8–10% |
|
China import share |
~10–12% |
~18–20% |
~15–20% |
|
Military alliance with U.S. |
NATO/NORAD/Five Eyes |
Security cooperation, not alliance |
No comparable treaty integration |
|
Use of currency swap with China |
Yes |
No |
Yes |
|
Investment screening |
Relatively strict for security
sectors |
Historically weak, now tightening |
Relative flexible |
|
Exposure to Chinese retaliation |
Limited but politically sensitive |
Minimal |
Limited |
At first, Mexico’s structural similarity to Canada — deep U.S. integration — makes it the more relevant comparator. However, in terms of other more meaningful indicators, Argentina is the more relevant comparator, as shown below:
|
Country Metrics Comparison （with Each Assigned 10) |
|||
|
|
Canada |
Mexico |
Argentina |
|
Trade Balance Imp/Exp |
5 |
10 |
5 |
|
FDI in GDP |
5 |
0 |
5 |
|
Debt Reliance |
0 |
10 |
5 |
|
Industry Autonomy |
5 |
0 |
5 |
|
Trade Regional Diversity |
5 |
5 |
0 |
|
Average of the Total (%) |
80 |
70 |
80 |
VI.
What Canada Can Copy
1.
Sectoral Compartmentalization
Mexico and Argentina effectively
separate:
- Commercial sectors
(manufacturing inputs, agricultural products like beef and soybeans, EVs,
electronics and other consumer goods)
- Strategic sectors
(critical energy, sensitive infrastructure)
Canada could formalize a
“two-bucket” framework:
- Open commercial sectors (like agricultural, clean-tech
inputs, consumers goods, selected minerals under transparent offtake
rules)
- Restricted security-sensitive sectors (telecom, defense-adjacent
technologies, critical infrastructure)
2.
Trade and Investment Diversification
Canada can learn from Mexico in
reaching more trade agreements (with a “both…and” stance), balancing trade
among different countries, preparing contingency plans for managing reactions
from big powers, and introducing investment to encourage competition, raise
efficiency and increase capital investment with certain guardrails. Canadian
political and institutional culture prizes stability, legal predictability, and
alliance cohesion. While Canada cannot control what its partners can do, it can
control what it does to boost investor confidence and spur consumption.
Predictable and clearly published
criteria reduce uncertainty while protecting security. Canada’s Investment
Canada Act already provides a base; greater procedural transparency (like
Canadian control, transparent contracts and regular security review for
sensitive sectors) would strengthen credibility.
3.
Supply Chain Positioning
Mexico has benefited from
nearshoring. Canada could similarly position itself as:
- A secure supplier of critical minerals to the U.S.
- A trusted node in EV and battery supply chains
OECD and IEA data show strong growth
potential in battery minerals demand.
4.
Provincial Economic Diplomacy with Federal Guardrails
Argentina’s provinces actively
attract investment. Canadian provinces could expand commercial outreach — but
under nationally defined security guidelines and a clear federal regime to
spread benefits and embed deeper ties.
5.
Monitored Currency Swap Arrangement
Argentina’s reliance on renminbi swap lines is not
only a response to chronic balance of payments stress and limited market access
for dollars, but also a financial tool to reduce its foreign exchange risk and
meet its changing liquidity need.
VII.
What Canada Cannot Copy
1.
Over Reliance on One or Two Countries or Sectors in International Trade
Relying
heavily on one or two countries may bring forward serious damages with
fluctuating exchange rates and changeable diplomatic relationships. Argentina’s
over-reliance on Chinese toys and textile products poses great potential risks. Canada is in such a situation when dealing with the U.S., looking like a ship with a pitched sail on the sea. With the unknown whirlpools and reefs and the unpredictable weather, that ship cannot sail to the destination confidently.
2.
Over Reliance on Exporting Processed Imported Materials
As shown above, Mexico’s imported intermediate
inputs in manufacturing (% of Gross Exports) accounts for 78.7%, which makes it
vulnerable to US penalties on violating against requirements on product origin
and other USMCA rules. Also, a manufacturing industry relied on another single
country is too risky.
______________________________________________________________________________
3.
Over Reliance on the Present Trade Framework
Canada is proud to be an active member of USMCA,
which commits to free trade of over 90% goods and services in North America.
Recently, The US House of Representative voted 219 to 211 to revoke the tariffs
that President Donald Trump imposed on Canada in 2025. However, the vote is
largely symbolic as it will still need to be approved by the US Senate and then
approved by Trump, who is very unlikely to sign it into law[ii].
Therefore, reliance on the present trade framework is not useful.
VIII.
Guardrails for Canada
1.
Differentiated
Sectoral Regimes
There may
be a formal classification of sectors into at least three bands: low‑sensitivity
(agri‑food, non‑strategic consumer goods), medium‑sensitivity (some
manufacturing, non‑critical services), and high‑sensitivity (critical minerals
processing, advanced tech, infrastructure). In low‑sensitivity sectors, Canada
could pursue Argentina‑style openness to Chinese trade and investment (e.g.,
agricultural exports, some EV imports) to lower prices and diversify demand; in
medium‑sensitivity sectors, it could adopt Mexico‑style pragmatism with closer
U.S. consultation.
2.
Policy
Consistency and Coherence
Whether Canada is dealing with EU,
US or China, a policy consistence and coherence should be pursued. For the time
being, any major China related policy that touches rules of origin, state owned
enterprises, or subsidies should be systematically stress tested for USMCA
compatibility and potential U.S. retaliation channels.
3.
Data
and Transparency Requirements
Mandatory
disclosure of beneficial ownership (with requirements on the percentage
ownership control), financing sources, and key contractual terms for large
foreign investments in strategic sectors, applicable to all countries but with
particular scrutiny on opaque state linked entities. Public reporting on aggregate exposure to Chinese trade and
investment by sector, comparable to IMF and World Bank statistical series, to
ground debates in data rather than speculation.
4. Domestic Adjustment and Resilience Tools
Trade adjustment programs and
industrial strategies that cushion sectors exposed to import surges or supply
chain shifts associated with greater China integration, drawing on OECD and IMF
best practice. Investments in R&D, infrastructure, and skills that
reinforce Canada’s attractiveness to both U.S. and diversified partners,
including but not limited to China, so that any future decoupling pressure is
met from a position of strength.
5.
Currency
Swap Arrangement Monitoring and Control Measures
To prevent disproportionate reliance
on one external counterparty and mitigate contagion risk in a crisis, risk caps
could be set on the proportion of reserves that can be backed by swap lines
with any single partner; and stress tests could be instituted on central bank
foreign exchange portfolios to model counterparty and currency valuation risks.
To reduce moral hazard and ensure swap lines enhance stability, clear criteria about
the time under which swaps are activated (e.g., reserve thresholds or exchange
market turbulence) should be set. Also, there is a need to explore arrangements
with other central banks to diversify liquidity sources.
IX.
Conclusion
Argentina shows how resource
leverage and financial tools can expand policy space — but also illustrates the
risks of macroeconomic fragility. Mexico shows how deep U.S. integration can
coexist with substantial Chinese trade — provided strategic sectors are tightly
managed. Canada can learn how they segment sectors, stage commitments, negotiate
policy autonomy within constraints and build a symmetrical strategy with EU,
Australia and China.
Neither economic opportunism nor ideological
alignment should be the path forward. It should be disciplined
compartmentalization, institutional clarity, and strategic realism. Diversification
is possible, and hedging is feasible with some guardrails. Decoupling is
unhealthy, yet it needs to be prepared. The central lesson is not whether Canada
should imitate Mexico or Argentina. It is that calibrated and practical multilateral
engagement requires institutional design, not rhetorical balance.
[i] Natalia
Donato: Toy industry alarm: in the holiday season, warnings are issued about
low consumption and record imports (Spanish), Infobae, 2025-12-01, https://www.infobae.com/economia/2025/12/01/alarma-en-la-industria-del-juguete-en-el-mes-de-las-fiestas-advierten-por-el-bajo-consumo-y-las-importaciones-record/#:~:text=Econom%C3%ADa-,Alarma%20en%20la%20industria%20del%20juguete:%20en%20el%20mes%20de,consumo%20y%20las%20importaciones%20r%C3%A9cord;
"China is invading Argentinians' wardrobes," according to local
textile companies: 7 out of 10 imported garments come from the Asian country
(Spanish), Infobae, 2025-12-10, https://www.infobae.com/economia/2025/12/10/china-invade-el-placard-de-los-argentinos-segun-los-textiles-locales-7-de-cada-10-prendas-importadas-vienen-del-pais-asiatico/.
[ii] Kwasi
Gyamfi Asiedu: US House votes to overturn Trump's tariffs on Canada, BBC,
2026-02-26. https://www.bbc.com/news/articles/clyz2142e77o.
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