Canadian Prime Minister Justin Trudeau laughs as he speaks with Mexican President Enrique Peña Nieto during a session on carbon pricing at the United Nations climate change summit in Le Bourget, France on November 30, 2015.Adrian Wyld/The Canadian Press
When Justin Trudeau welcomes Mexican President Enrique Pena Nieto to this week's NAFTA leaders summit in Ottawa, he'll gush about the strong bond between the countries.
The awkward truth is that it's been a distant and forgotten relationship, too often conducted by proxy through that big colossus in the middle – the United States.
Canada only reluctantly joined the North American free-trade agreement in 1994, worried it would dilute its preferred access to the U.S. market. And in the 22 years since, Canadian officials have frequently behaved as if NAFTA didn't exist, preferring to deal directly with the U.S. rather than at a table for three on major issues, such as borders, energy and regulatory co-operation.
"Many in Canada have made a habit of either underestimating Mexico's prospects or holding onto the outdated idea that closer relations with Mexico would undermine the putative 'special relationship' between Canada and the United States," trade consultant Laura Dawson argued in a 2015 report for the University of Calgary's School of Public Policy.
If that was the policy aim, it has been a failure on one key measure: trade. In recent months, Mexico has quietly surpassed Canada in exports to the United States. The historic crossover happened for the first time last May. And in nine of the 11 months since, the value of Mexican goods exported to the United States has exceeded Canada's. In April, for example, Mexico sold $25-billion (U.S.) worth of goods to the U.S., compared to Canada's $23.4-billion, according to U.S. Commerce Department figures.
Canada lost its spot as the leading No. 1 exporter to the U.S. to China in the mid-2000s.
Two-way trade between Canada and the U.S. ($577-billion in 2015) still eclipses Mexico-U.S. trade of $532-billion. But the gap is narrowing a bit every year.
The drop in the price of crude is a big part of the recent trend, shrinking the value of Canadian exports because we sell a lot more crude to the U.S. than the Mexicans do.
The longer-term story is Mexico's rapid economic ascent, combined with a move up the value chain in its exports, which are now dominated by manufactured goods such as vehicles, auto parts, electronics and telecommunications equipment.
Bombardier makes rail cars in Mexico, and Canadian auto parts makers Linamar and Magna have significant operations there, part of vast North American supply chains.
But overall trade and investment flows between the countries remain relatively small.
"While Canada was scouring the globe for promising new bilateral trade partnerships, we overlooked the transformation happening on our doorstep in Mexico," said Ms. Dawson, director of the Canada Institute at the Woodrow Wilson International Center in Washington, D.C.
That's unfortunate because Canada and Mexico need each other more than ever as a counterweight to the U.S. on trade. This week's NAFTA leaders' meeting comes amid rising protectionist sentiment in the U.S. and Europe. Both presumptive U.S. presidential candidates – Democrat Hillary Clinton and Republican Donald Trump – have been sharply critical of the trade deal and have vowed to renegotiate it if elected. Last week's vote by Britain to leave the European Union is a reminder that economic and anti-immigrant angst is the enemy of free trade.
Much of the protectionist talk in the U.S. is directed at Mexico, but Canada could easily be "caught in the crossfire of initiatives targeted at Mexico," Toronto-Dominion Bank economists Beata Caranci and Leslie Preston warned in a report last week.
Repealing NAFTA or trade action directed at Mexico would "clearly have a damaging impact on Canada," they said.
"It's important that Canada protect U.S. market access gained under previous trade agreements, and build on them with the next president," according to the report.
Canada and Mexico could find they have more in common than ever as the world steps back from economic integration. NAFTA has become a dirty word in the U.S. presidential campaign. For Canada and Mexico, NAFTA is critical to protecting access to the U.S. market.
The countries will likely have to work much more closely together in the years ahead to make that happen, just as they successfully did last year by challenging and eventually defeating U.S. country-of-origin meat labelling rules.