The U.S.-Mexico talks are being framed as an effort to reach an interim bilateral deal while issues with the three-country USMCA pact including Canada are negotiated.
That agreement was thrown into uncertainty in July when the U.S. did not agree to renew it for another 16 years. The accord remains in effect, subject to annual review, but the Trump administration has used the process to seek additional concessions from Canada and Mexico.
Officials in both Mexico and Canada, which have long been uneasy allies, have publicly stressed their commitment to preserving a trilateral agreement. But some Mexican officials privately argue Mexico should not sacrifice its own interests to secure a deal for Canada.
The race for a U.S.-Mexico deal may have additional strategic dimensions. One auto industry source said the Trump administration aims to isolate Ottawa by reaching a deal with Mexico before major new Canadian tariffs take effect on Jan. 1.
A U.S.-Mexico deal could also bring down consumer prices in the United States and deliver a "political win" for the Trump administration, said Diego Marroquin Bitar, an expert on North American trade who also works as a consultant. "They could argue it was Canada's fault they didn't reach an agreement."
A major hurdle in any interim trade deal is the so-called Section 232 tariffs on steel, aluminum, automobiles and auto parts. Under those national security tariffs, Mexican and Canadian steel exported to the U.S. face tariffs of 50%, while vehicles are subject to a 25% duty.
Trump has since negotiated lower auto tariffs for other trading partners, including 15% for Japan, the European Union and South Korea, and 10% for Britain, leaving some vehicles from those countries facing lower duties than cars shipped from Mexico and Canada.
Before negotiations collapsed last month, Canada appeared close to a breakthrough with Washington on Section 232 tariffs and other trade issues, raising hopes Mexico could quickly secure similar terms.
Several automakers believe Washington could ultimately offer Mexico the same framework discussed with Canada: a 15% tariff on vehicle imports, plus an additional reduction for U.S. content, bringing the effective tariff rate to around 7%.
In return, Mexico is expected to give ground on U.S. demands for greater American content in vehicles, particularly engines, electronics and software, a second Mexico-based source said.
While Mexico opposes explicit U.S. content requirements, "that doesn't mean it won't be working on something to help increase the U.S. content," the source said, adding that the final shape of such a compromise is "the big question."
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