Canada’s prospective agreement with the Mercosur trade bloc is coalescing quickly as the steady drumbeat of trade diversification advances across the Western Hemisphere.
A deal between the United States’ neighbor to the North and the South American nations of Argentina, Bolivia, Brazil, Paraguay and Uruguay could be completed by the end of the year, and perhaps even before September, government sources told Reuters.
The news comes after negotiations between the bloc and Canada petered out in 2021. But the trade landscape changed tremendously over the ensuing five years, and radically since President Donald Trump returned to office in January 2025, ushering in a new era of tariff dominance. Canada became an unlikely target of those duties in the early days of Trump’s second term, destabilizing long-running trade dynamics in North America.
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Faced with being iced out by its biggest trading partner, Canada has since forged strategic partnerships with countries across the globe, including China, much to Trump’s chagrin. The two countries agreed in January to draw down bilateral trade barriers on Chinese electric vehicles and Canadian agricultural products, respectively. Trump threatened to hit Canada with 100 percent duties if it finalized the deal.
Brazil, the biggest economy within the Mercosur alliance, has also been targeted heavily by the Trump administration with tariffs raised to 50 percent, the highest rate applied to any economy except India. The Supreme Court denied the president’s authority to utilize his statute of choice, the International Emergency Economic Powers Act, to levy the double-digit duties on dozens of American trading partners on Feb. 20.
A deal between Canada and the Mercosur nations could have strong economic implications, with a combined population of 282 million and GDP of nearly $3 trillion as of 2024, according to Canadian government data. That year, Canada’s merchandise trade with Mercosur amounted to $15.8 billion.
“Negotiations on a free trade agreement are moving forward with momentum, and we are encouraged by the progress being made. Canada is committed to concluding an ambitious, comprehensive agreement that creates real opportunities for Canadian businesses, workers, and investors,” a Canadian trade ministry spokesperson said last week.
A sure sign of seriousness is Canadian Prime Minister Mark Carney’s intention to visit Brazil in the next quarter, according to Reuters sources in Brazil, though neither government plans to announce the details of a potential treaty at that time.
The South American nations are interested in upping their exports of agricultural products like beef, soy and minerals while attracting investment in industries like mining. Meanwhile, Canada aims to gain access to new alternative markets to the U.S., which remains by far its biggest export destination.
Canada may be looking at the completion of a deal between Mercosur and the European Union in January as a template. After 25 years of protracted talks, the trans-Atlantic trade blocs came to an agreement that will be applied provisionally beginning May 1, creating the largest global free trade zone on record.
However, that framework has proven controversial with some EU members, like France, Poland, Austria and Ireland, whose farmers have protested opening up the European consumer market to a wave of cheaper agricultural products.
