Trump is driving a wedge between 2 key US allies

Reuters/Chris Wattie

Mexico's President Enrique Pena Nieto, Canada's Prime Minister Justin Trudeau and U.S. President Barack Obama shake hands while posing for the family photo at the North American Leaders' Summit in Ottawa, Ontario, Canada, June 29, 2016.

• The North-America Free Trade Agreement (NAFTA) hangs in the balance following acrimonious negotiations, including leaks of unflattering comments from US President Donald Trump about his Canadian counterparts.
• "Many Canadians feel as though Mexico has turned its back on them," said Duncan Wood, director of the Mexico Institute.
• This wedge between two key allies could come back to hurt the United States.

The North-America Free Trade Agreement (NAFTA) hangs in the balance following acrimonious negotiations.

President Trump seems bent on wrecking the trade agreement despite Mexico and Canada's best efforts to salvage it. His dismissive remarks toward his Canadian counterparts were leaked to the Toronto Star, making it even harder for Prime Minister Justin Trudeau and his chief trade negotiator, foreign minister Chrystia Freeland, to find common ground with the United States.

But perhaps one of the worst impacts from Trump's bull-in-the-China-shop approach to trade negotiations is what he's managed to do to relations between Mexico and Canada. By trying to negotiate individually, Trump employed a divide-and-conquer strategy that may prove counterproductive given the level of integration of North American supply chains, particularly in the manufacture of big-ticket goods like cars and airplanes.

"We know that was not well received in Canada. Many Canadians feel as though Mexico has turned its back on them," said Duncan Wood, director of the Mexico Institute, in a telephone briefing with reporters.

"Mexico has gone from the bad guy to the friend and Canada is now the" apparent foe, he said.

Jorge Castaneda, Mexico's ex-foreign minister, told Bloomberg that, while it is "desirable" for Canada and Mexico to cooperate, the two have different issues and industries at stake. "I'm not sure it's that easy, because many of the most worrisome issues for one country are not that important for the other," he said.

The auto sector, with its highly-integrated supply chains, is one key link that connects all three nations. But there are big differences in agricultural demands, and in the specifics of labor and environmental concerns addressed in the agreement.

How could this come back to haunt American businesses?

Already, there's evidence that uncertainty over trade is dampening US business investment plans. The collapse of a long-standing agreement such as NAFTA, while it can still be averted, would be quite a shock to the economies involved - and to financial markets already rattled by rising risks from emerging markets.