MEXICO CITY — When Canadian cleantech startup Solfium was looking for a market to launch its online platform that helps homeowners and businesses switch to rooftop solar power, Canada’s trading partner to the south was the obvious choice.
No, not that trading partner.
Mexico, not the U.S., was “the path of least resistance” for reasons ranging from regulatory to personal, Andres Friedman, the company’s 46-year-old CEO, said in an interview in the lobby of a luxury hotel in Mexico City. Originally from Uruguay, Friedman moved to Montreal to study at McGill University, and later worked for Bombardier, including at its aerospace plant in Querétaro, about 215 kilometres northwest of Mexico City. That meant his professional network was already in Mexico. Other things about the country work in favour of startups, Friedman said, including an emerging middle class, limited competition and a population where more than two-thirds of people are of working age.
Talking Points
Prime Minister Mark Carney and Mexican President Claudia Sheinbaum agreed to a new “action plan” to boost bilateral trade and co-operation in areas such as energy corridors, innovation, agriculture and cybersecurity
Both countries are bracing for a contentious review of the North American trade pact next year, which observers say is likely to result in more annual reviews
In 2021, the company launched a mobile app that helps people weigh the pros and cons of using solar energy, gets them personalized quotes to make the shift, and links them to businesses that can supply and install the panels. Conditions in Mexico’s energy market were another attraction. Unlike Canada, where Friedman holds citizenship, Mexico has a single, nationwide regulatory framework for electricity, and an integrated market. The power it produces is carbon-intensive and relatively costly, he noted, which creates demand for cheaper and cleaner solar energy.
Solfium is expanding to meet that demand. It shifted in recent years to helping larger enterprises reduce emissions in their operations and supply chains. The company lists Scotiabank, Coca-Cola, PepsiCo, Michelin and Mabe, an appliance maker in Mexico, among its clients. On Wednesday, Solfium announced a US$7-million equity investment as part of a Series A funding round, where it hopes to raise US$10 million.
Solfium CEO Andres Friedman chose Mexico as a launch market due to a range of business advantages. Photo: Caitlin Cooper for The Logic
On its face, the company’s story exemplifies a potential that proponents of continental free trade saw three decades ago as the original North American Free Trade Agreement took effect—a sign that not everything about the relationship must hinge on the economic behemoth at the centre of it. Friedman spoke to The Logic the day after Prime Minister Mark Carney and Mexican President Claudia Sheinbaum had rubbed elbows with business leaders from both countries at a reception just down the street, part of a visit by Carney meant to build on the two countries’ economic partnership.
Yet another unspoken point of that trip was heading off a spectre business and political leaders are starting to dread: a future where the United States abandons the tripartite trade deal, leaving its two partners to their own devices. Because, while Canada and Mexico say they have a lot to gain from each other, they have much more to lose from the United States.
Friedman, for one, was quick to point out that his own firm remains an exception that proves a rule: “The beaten path is for tech companies in Canada, or many companies in Canada, to grow in Canada and then go to the U.S.,” he said. “We’re the weird ones that skipped the U.S. and went straight to Mexico.”
The trading relationship between Canada and Mexico has always been the weakest side of the North American triangle, as the economies of both countries are linked to the supply-and-demand rhythm of the superpower between them. That dynamic is now at risk. U.S. President Donald Trump made both Canada and Mexico early targets of his global trade war, slapping steep universal tariffs on both that he linked to fentanyl. A carve-out for goods that comply with the United States-Mexico-Canada Agreement (USMCA) has shielded their respective economies from the full force of the tariffs. The U.S. effective tariff rates on Canada and Mexico are among the lowest in the world, but there is growing anxiety over what is expected to be a contentious review next year.
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Not that it will be smooth sailing until then. Last Friday, and not for the first time, Trump abruptly halted trade talks with Canada—this time in apparent anger over Ontario Premier Doug Ford’s U.S.-based ad campaign featuring excerpts of an anti-protectionist radio address by late president Ronald Reagan. The next day, Trump threatened to increase tariffs on Canadian goods by another 10 per cent, having already hiked the fentanyl-related tariffs on Canada from 25 to 35 per cent in August.
Mexico, for its part, was facing an increase to 30 per cent by the end of this week, though Sheinbaum said Monday that Trump agreed to hold off “a few more weeks” to keep talking. Meanwhile, the U.S. Supreme Court is set to hear arguments next week over whether Trump had the authority to impose those tariffs to begin with.
The chaos has pushed political and business leaders in both Canada and Mexico to find ways to strengthen their ties as part of efforts to deepen integration and diversify trade beyond the U.S. That renewed sense of common mission is what brought Carney to the Palacio Nacional in Mexico City last month, where he joined Sheinbaum beneath the arches of the Treasury Room to announce a joint three-year “action plan” on everything from energy corridors to innovation, plus a trade mission taking place next February.
“North America is the economic envy of the world,” Carney said Sept. 18, who pointedly told journalists that Canada has no plans to cut Mexico out of the trilateral deal. “It’s the most competitive economic region of the world, and part of the reason for that is the co-operation between Canada and Mexico—both of us—and the United States.”
There were only two leaders onstage, but the presence of a third loomed large. Having learned just how much the USMCA can protect them from economic harm, Carney and Sheinbaum were intent on doing whatever they could to keep it going.
The Port of Manzanillo, on Mexico’s Pacific coast; Canadian exports to Mexico have grown little since the North American trade deal came into force. Photo: Shutterstock/J. Romero
Canada sold about $9.4 billion worth of goods to Mexico in 2024, which made up just over one per cent of its total exports. In the other direction, Canada received $29.4 billion in goods from Mexico last year, which was less than four per cent of total imports. In 1997, three years after NAFTA came into force, Canada exported about 0.7 per cent of its goods to Mexico, while the country made up 1.5 per cent of its total imports.
The merchandise figures are only part of the story. Total Canadian investments in Mexico amounted to $57 billion last year, which includes about $46 billion in direct investment. In 2023, there was nearly $114 billion worth of assets held by Canadian majority-owned affiliates in Mexico.
“Trade between the nations has been modest,” said Keith Creel, CEO of Canadian Pacific Kansas City (CPKC), a continent-wide freight railway network, said earlier this month at a summit on Canada-U.S. relations in Toronto. “We’ve been seized with America. We’re always going to be seized with America,” he added, but now Canada and Mexico “see each other in a way they’ve never seen each other before.”
“The beaten path is for companies to grow in Canada and then go to the U.S. We’re the weird ones that went straight to Mexico.”
That shift in perspective has become increasingly important to CKPC, which formed in 2023 following Canadian Pacific’s US$31-billion takeover of Kansas City Southern. The goal was to have its 32,000 kilometres of routes across all three countries benefit from increasing North American integration, but Creel has spent much of this year spinning the trade crisis as an opportunity to create a “land bridge” between Canada and Mexico that allows goods to move directly from one country to another, bypassing U.S. tariffs along the way.
During his visit, Carney joined him for a tour of a CKPC rail yard in Mexico City, where they watched the delivery of wheat grown in Manitoba. In a somewhat awkward visual meant to illustrate the potential range of the bilateral relationship, the prime minister went to a table set up in the rail yard and broke off a piece of a bun he said was made at a local bakery that could use flour from Canadian wheat. To ensure no one missed the point, the buns were in baskets lined with paper featuring red maple leaves.
Other signs of Canadian business activity in Mexico are more subtle. A stroll through Polanco, an upscale neighbourhood known for its luxury boutiques, tree-lined streets and restaurant patios, reveals well-known foreign brands—including German sportswear giant Adidas and British cosmetics retailer Lush—located alongside local storefronts.
Lululemon set up its first showroom in Mexico in this neighbourhood in 2017. The Vancouver-based athleisure retailer now operates 26 locations in the country. The manufacturing sector is a substantial force in the Mexican economy, contributing about 21 per cent of to its GDP in the second quarter of 2025, but Lululemon is there to sell wares, not make them. Last December, the company said it sourced less than half a per cent of its materials from Mexico. As of April, Mexico was not on its list of active suppliers. It might be true that Mexicans don’t drink Molson, per the title of a book about Canadian businesses’ struggles to compete abroad. But they are buying Canadian yoga pants.
While extreme poverty has hovered around seven per cent, Mexico has a growing consumer class. In 2024, its national statistics agency categorized about one-third of its population as “no pobre y no vulnerable” (not poor or vulnerable), compared to about one quarter in 2020. That “middle class” amounts to more than 42 million people—the entire population of Canada and then some.
Prime Minister Mark Carney watched a CPKC train unload Canadian grain at a rail yard in Mexico City. Photo: The Canadian Press/Adrian Wyld
There is a Scotiabank branch on the corner down the street from the Lululemon boutique—one of more than 600 in the country. “Mexico is a key engine for growth around our [global banking and markets] business. No secret,” Francisco Aristeguieta, Scotiabank’s head of international banking, said Aug. 26 during a third-quarter earnings call. CEO Scott Thomson has stressed, however, that Mexico is a smaller player in Scotiabank’s capital allocation strategy for North America. “Canada first, U.S. second, Mexico third,” he said at a recent summit hosted by the bank.
Emilio Cadena, chief executive of Prodensa, which helps foreign investors set up and grow manufacturing operations in Mexico, wrote an open letter to Carney earlier this year on what his country could offer Canada—beyond preferential access to the U.S. market through the USMCA. What Mexico needs in return, he wrote, is for Canada to view it as a trusted partner.
In an interview, Cadena said he wants to see all three North American countries work together to impose tariffs on foreign-made goods that compete with those produced within the continent, while developing critical supply chains in the region for those they source overseas. There is only so much Canada and Mexico could do on their own, he said. “We need to realize that we need the Americans [at] the table.”
“Far from routine, the review could become a high-stakes moment that determines whether the USMCA endures, unravels or evolves.”
Diego Marroquín Bitar, a fellow in the Americas Program at the Center for Strategic and International Studies in Washington, D.C., predicts the USMCA review, which he said was meant to be a “health check,” will morph into a full-blown renegotiation that will revisit hot topics such as rules of origin, which determine how much of a good must come from North America to qualify for preferential tariff treatment. “Far from routine, the review could become a high-stakes moment that determines whether the USMCA endures, unravels or evolves,” he wrote last month.
The stakes are high because Trump seems less than committed to the deal. When he first sat down with Carney in the Oval Office in May, the president mused that the USMCA might not be “necessary anymore,” and that an outcome of the review could be to “adjust it or terminate it.” Dominic LeBlanc, the minister responsible for Canada-U.S. trade, told reporters in Mexico City last month that he viewed the U.S. launching formal consultations ahead of the review, which involves Congress, as a “positive sign,” noting they “didn’t do a more dramatic gesture.”
Marroquín Bitar suspects the most likely result is a period of annual reviews—potentially for a decade. Under the terms of the agreement, this could happen if at least one of the three countries decides against renewing the pact until 2042, but does not go so far as to completely withdraw from it.
“The relation between [the] three countries is just too complex,” he said in an interview. The list of trade irritants is also long. “I don’t think there’s going to be enough time to find solutions or compromises to every item on the agenda before July 1, 2026.” Indeed, he said, it might benefit Canada and Mexico to see whether the political situation in the U.S. changes, rather than each of them making major concessions to get Trump to renew the USMCA next year.
Odracir Barquera, director general of the Asociación Mexicana de la Industria Automotriz (AMIA), which represents the Mexican automotive industry, said in an interview that it is crucial that Canada and Mexico get on the same page. “I think the priority for the review is that all three countries can agree on the fact that we need to further our integration in order to be able to keep the competitiveness of the region versus the rest of the world.”
Maintaining that sense of shared purpose has not always been easy.
Shortly after Trump won the election last November, Ontario Premier Doug Ford and Alberta Premier Danielle Smith suggested Canada should seek a bilateral deal with the U.S. Ford went so far as to call Mexico a “back door” for Chinese imports, especially in the auto sector, and then-finance minister Chrystia Freeland said she shared those concerns. So did then-prime minister Justin Trudeau—even after Sheinbaum publicly called on Canada not to cut Mexico out of the deal.
Barquera, who got the chance to speak to Carney at the reception in Mexico City, said those fears were misguided. There are no Chinese auto production plants in Mexico. The one factory that assembles Chinese vehicles is a joint venture operated by Mexico’s Giant Motors, which assembles JAC brand autos for the domestic market from imported parts and is a relatively small player, he said. (Last November, Sheinbaum acknowledged Trudeau’s concern about reports that Chinese company BYD, which makes electric vehicles, was planning to build a plant in Mexico. She said she told him the only BYD plant on the continent was in California.)
Mexico is nonetheless an important market for Chinese-made vehicles. About 23 per cent of new cars sold in Mexico in 2024 were imported from China, although only about half were Chinese brands. The rest were from U.S.and European automakers with plants in China. The Mexican government has proposed increasing tariffs to as high as 50 per cent on many goods, including autos, from countries with which it does not have trade agreements.
A bakery and café in the Roma Norté district of Mexico City; Mexico’s growing consumer class is greater than Canada’s entire population. Photo: Getty Images/Jeff Greenberg
The goal, said Marroquín Bitar, is to boost domestic production and mitigate the impact of the U.S. tariffs, but the move could also help Sheinbaum in the USMCA review. “China has been, for a while, one of the main wedges not only between Mexico and the U.S.,” he said, “but also between Mexico and Canada.”
The automotive industry is not the only one that relies on heavily integrated supply chains. Carlos Berzunza is executive president at CANIPEC. It represents the cosmetics and personal care industry in Mexico, including major brands such as Revlon and Colgate. He said raw ingredients—be they petrochemicals or plant-based materials—might be sourced around the world, then mixed with others in Mexico, the U.S. or Canada to create a final product.
Losing the USMCA would be a “doomsday scenario,” said Berzunza, but if it comes to pass, his industry would have to find a way to adapt. There are opportunities to enhance trade between Mexico and Canada, he said, but Mexican companies would also have to focus more on trade within Latin America. The cosmetics industry invested in North American integration because it makes economic sense, he said. No longer having a trilateral deal would prompt companies to revisit these investments to see “whether it makes sense to keep on operating the same way, having lost a significant part of the potential market.”
For now, Mexico is making the most of the deal—and the world as it exists, rather than how Trump threatens to reshape it. While American politicians on both sides of the partisan divide have long decried U.S. companies moving manufacturing to Mexico, “American companies continue to set up shop here,” said John Price, managing director of consulting firm Americas Market Intelligence.
Price is based in Miami but spoke to The Logic during one of his frequent trips to Mexico, which he compares favourably to China as a place for U.S. companies to make things. “There’s still strong economic incentives to divest from China because of the tariffs applied on Chinese products and just the uncertainty around that relationship and where it’s going,” said Price. The cost of labour in China has been rising and in many regions the minimum wage is now higher than anywhere in Mexico. And while the universal U.S. tariffs on Mexico are at 25 per cent, the carve-out for USMCA compliant goods means the effective tariff rate is closer to two per cent. “If you’ve already got an installed factory and all of the other sunk costs, then maybe you can continue to be just as competitive in China,” said Price. “But if you’re thinking of a new factory or expanding a factory, it makes more sense to put it in Mexico, irrespective of the rhetoric.”
Eduardo Suárez, vice-president of Latin America economics for Scotiabank, says the integration of North American economies is like a “force of gravity.” Photo: Caitlin Cooper for The Logic
The automotive, aerospace, heavy machinery and home appliance industries all need what Mexico has to offer, added Price: “Cheap labour and cheap logistics.” And despite efforts by Trump to persuade manufacturers to relocate to the U.S., he said, major companies want to sell to Asia and South America, too, so they need a competitive manufacturing base.
Trouble is, the massive role that manufacturing now plays in Mexico’s economy is what makes the country so vulnerable to losing the deal.
“Mexico is the only country of the three that is willing to do whatever it takes to renew, because they need it more than any of the three countries,” Price said. Canada, he noted, sells mostly commodities to the U.S. that, if pressed, it could shift to other markets. “Canada can sell all its oil to the rest of the world. No problem. They can sell all their potash to the rest of the world. No problem. They can sell all their natural gas,” he said. Much of the Mexican economy, however, relies on manufacturing a part in a supply chain where the final customer is in the U.S. “They are locked into supply chains that make it difficult to diversify.”
Eduardo Suárez, vice-president of Latin America Economics at Scotiabank, is an optimist about the future of North American integration. A citizen of all three countries who has worked as an economist in Mexico’s ministry of finance, Suarez had also met Carney during his visit to the capital.
In Polanco the following day, where shops and restaurants were bustling despite everyone bracing for Mexico’s country-wide annual earthquake drill, he said the USMCA exemption has given both countries an advantage over the rest of the world, even if Canada and Mexico are unlikely to escape U.S. tariffs entirely. The growing interconnection of North America’s economies, he said, is “almost like a force of gravity” that continued this year despite moves to undermine the trade deal. “People are coming to the realization that the integration runs much deeper than a signed piece of paper.”
With files from Eyanir Chinea in Mexico City