- China-US Harmonized Trade Policies: Align tariffs and investment screening across USMCA nations to prevent loopholes for Chinese goods and investments.
- Stronger Regional Supply Chains: Boost critical industries like EVs, semiconductors, and clean energy to reduce reliance on Chinese imports.
- Enforcement of Standards: Improve compliance with labor, environmental, and ethical trade practices to enhance North America’s competitiveness.
- Strategic Resilience Planning: Develop joint trade emergency protocols to mitigate disruptions and build long-term economic stability.
The dynamics of global trade are undergoing profound shifts. With the United States ramping up efforts to de-risk its economic ties to China, the focus has turned to fortifying North America’s economic unity. The United States-Mexico-Canada Agreement (USMCA) offers a robust framework for collaboration, but its potential remains underutilized in addressing competition with China. For North America to remain globally competitive, a cohesive and coordinated economic strategy is imperative.
The USMCA’s Unique Strengths
North America’s economic interdependence is unmatched, with the USMCA serving as its backbone. The three countries boast a combined trade volume of $1.8 trillion annually. Canada and Mexico are the largest trading partners for the U.S., accounting for 33% of its exports. Likewise, Canada and Mexico depend on the U.S. market for 75% and 78% of their exports, respectively. This integration supports over 17 million jobs across the continent and forms the basis of a powerful economic bloc.
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However, despite these advantages, discrepancies in trade policies toward China threaten to undermine North America’s collective strength. The U.S. has implemented aggressive measures to limit Chinese economic influence, including export controls, tariffs, and restrictions on inbound investments.
Meanwhile, Canada and Mexico have taken a less stringent approach, creating potential loopholes that allow Chinese goods and investments to bypass U.S. regulations. This lack of alignment not only weakens the U.S.’s position but also compromises the region’s ability to compete effectively with China.
China’s Growing Influence in North America
China’s role as a global economic powerhouse is undeniable. Despite U.S. restrictions, Chinese firms continue to integrate into North American supply chains, particularly in emerging sectors such as electric vehicles (EVs). BYD, one of China’s largest EV manufacturers, has expanded operations in Mexico, benefitting from subsidies that allow its products to enter the U.S. market tariff-free under USMCA rules of origin. Such examples underscore the urgency of a coordinated approach among USMCA members.
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Renowned economist and Asia expert David Dollar remarked, “China’s economic scale and efficiency make it nearly impossible to fully substitute its role in global supply chains.” This sentiment is echoed by other experts who argue that while diversification is essential, a complete decoupling from China is unrealistic. As Henry Kissinger famously said, “China is too big to isolate.” These perspectives highlight the need for pragmatic policies that address China’s economic practices without undermining North America’s own economic stability.
Toward a Unified Response
Addressing the China challenge requires more than isolated efforts by individual nations. A coordinated North American strategy can amplify the impact of measures to safeguard the region’s strategic industries and reduce dependence on Chinese inputs.
Key Priorities for Collaboration:
- Harmonizing Trade and Investment Policies
Canada and Mexico must align their policies with U.S. measures, particularly in areas such as investment screening and export controls. This alignment will close gaps that currently allow Chinese goods and technologies to penetrate North American markets indirectly. - Strengthening Regional Supply Chains
By investing in critical industries like semiconductors, EVs, and clean energy, North America can reduce reliance on Chinese imports. Mexico’s automotive sector, which already sources over half its components from the U.S., presents an opportunity for deeper integration and investment in EV battery production and mineral refining. - Enhancing Enforcement Mechanisms
Ensuring compliance with USMCA labor and environmental standards will protect the region’s industries from unfair competition. Additionally, coordinated efforts to address forced labor concerns in Chinese supply chains, particularly in Xinjiang, will reinforce North America’s commitment to ethical trade practices. - Developing Strategic Resilience
Lessons from the COVID-19 pandemic highlight the importance of preparing for trade disruptions. Joint contingency planning and the establishment of emergency protocols can bolster North America’s ability to withstand future shocks.
The Challenges of Substituting China
While North America’s economic integration offers immense potential, finding a complete substitute for China remains a formidable challenge. Chinese manufacturing accounts for 28% of global industrial output, and its dominance in critical sectors such as rare earth minerals and solar panel production makes it an indispensable player in global supply chains. According to Jeffrey Sachs, “China’s role as the world’s factory is not easily replicated—it’s the result of decades of strategic planning and investment.”
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Even as the U.S. invests heavily in reshoring and nearshoring initiatives, the scale and efficiency of Chinese production cannot be matched in the short term. This underscores the importance of balancing efforts to reduce reliance on China with strategies that strengthen North America’s internal capabilities.
Summary
The USMCA provides a strong foundation for North America to navigate the challenges of global economic competition. However, its success hinges on the ability of the U.S., Canada, and Mexico to adopt a unified approach to trade and investment policies. While replacing China entirely is neither feasible nor necessary, reducing overreliance and building regional resilience are achievable goals. By harmonizing policies, investing in strategic industries, and enhancing enforcement mechanisms, North America can position itself as a formidable economic bloc capable of competing on the global stage.