The administration of U.S. President Donald Trump on July 1 declined to extend the USMCA for another 16 years, which Trump negotiated with Canada and Mexico in his first term. While Canada and Mexico said in June they favored extending the trade deal, the U.S. refusal to do so sets the accord up for annual reviews until July 1, 2036, or until the three countries all agree to extend the agreement for another 16 years. What does the U.S. decision mean for the future of the USMCA? To what extent will the U.S. decision lead to economic uncertainty and disruptions in North America? How will businesses and consumers be affected?
Kellie Meiman Hock, member of the Inter-American Dialogue’s Board of Directors: “The White House, always seeking leverage, views unpredictability as a strategic advantage. Thus, investors understood, grudgingly, that an extension of the USMCA extension was not in the cards. The initial joint review is ongoing, with the next U.S.-Mexico round to launch July 20 and rolling discussions with Canada vs. rather than formal rounds. This ‘never-ending review’ points to continued uncertainty, which investors loathe. Critical to mitigating the negative impact is avoiding withdrawal—nearly unimaginable given our intertwined supply chains—and maintaining the carve-out applied on most USMCA-compliant goods, which grants our North American trading partners the most privileged market access in the world. The carve-out survived the International Emergency Economic Powers Act (IEEPA) and Section 122 iterations of Trump’s tariffs, but Mexico was included in two of the new Section 301 investigations (overcapacity and forced labor) and Canada in one (forced labor). These are ongoing, and no commitment has been secured to preserve the USMCA carve-out. Except for autos, it has also not been applied to the Section 232 national-security tariffs. These include significant inputs to U.S. production, such as steel, aluminum and lumber. Per the National Association of Manufacturers, one-third of all imported U.S. manufacturing inputs originate in Canada and Mexico, meaning USMCA tariffs hit the bottom line of consumers, but also U.S. industry. There is a clear consumer and business cost to perpetual trade policy uncertainty, as well as to introducing tariffs into the USMCA. Addressing the agreement’s shortcomings, particularly Chinese participation in North American supply chains, is important, but restoring reliable trade rules as soon as possible is crucial.”
Joyce Sadka, head of the Department of Law at the Autonomous Technological Institute of Mexico: “The U.S. decision makes the future of the USMCA much more uncertain. When this is combined with other factors, including high and volatile prices of inputs due to the war in the Middle East, security problems in many of Mexico’s states and legal uncertainty due to Mexico’s judicial reform, Mexico is likely to be the most affected of the three economies by the uncertainty. Foreign investment has suffered recently, and there are signs that employment growth near the Mexico-U.S. border is lagging due to companies that are integrated with U.S. manufacturing industries, especially the auto industry, reducing their production and exporting from their inventories in the short term. Although the terms of the USMCA do not change automatically due to the July 1 announcement, the prospect of annual reviews along with the possibility of ad hoc tariffs and other costs for goods to cross the border will reduce incentives for large investments that pay off over many years. This is likely to affect business and show up in economic reports as weak new firm growth and weak employment. Consumers will be affected in Mexico due to slower wage income growth, and consumers on both sides of the border could experience higher prices.”
Dan Ciuriak, senior fellow at the C.D. Howe Institute in Toronto: “The main information content of non-renewal is the long-term signal as to where the United States is going. That matters for policy and for long-term investment. There is no imminent change to day-to-day trade because the USMCA remains intact. However, businesses and consumers will face impacts that are in the pipeline in the form of the various U.S. investigations under Section 232 (national security) or Section 301 (unfair business practices) to establish a pretext for the tariffs U.S. President Donald Trump announced at his inauguration. There is now a baker’s dozen Section 232 investigations with the launch of the investigation into anthracite coal, the latest ‘unfair’ trade practice is the alleged failure of all of the United States’ major trading partners to take adequate measures to prevent products made by forced labor from entering their supply chains. We should anticipate tariffs, including some retaliatory tariffs. These will drive up North American trade costs, weaken North American integration, and point Mexico and Canada in new directions. The Carney Doctrine states this bluntly and follows up with infrastructure projects (such as the new pipeline to Canada’s West Coast) and defense procurement (for example, the new submarine contract with European suppliers) that are not predicated on access to the U.S. market. The first Trump administration undermined confidence in market access in North America a decade ago. Existing exporters and investors faced sunk costs and remained in that market. But new firm formation is not predicated on untrammeled access. That undermines the most basic rationale for the eventual renewal of the USMCA.”
Cecily Fasanella, senior associate in the Americas Practice at Albright Stonebridge Group: “Though political rhetoric suggests the USMCA is dead, the agreement will continue until 2036 unless one of the signatories withdraws. Annual reviews are unlikely to occur on a predictable, regular basis, evidenced by this year’s frequent, substantive talks between Mexican and U.S. negotiators and Canada’s slower pace. Investors should expect continued debate on North American supply chains and Chinese content value along political lines. The reported U.S. demands for 50 percent of automobile components to be made in the United States, for example, is unlikely to be settled during the next round on July 20. This prolonged review will create business uncertainty and investment hesitancy but is unlikely to cause significant investment relocation. Trade experts and business executives were prepared for the likely scenario that the second Trump administration would not unconditionally approve a 16-year extension of the USMCA. However, Canada and Mexico still have unparalleled access to U.S. markets compared to international competitors. Further, Mexican President Claudia Sheinbaum has a unique ability to de-escalate tariff threats with her U.S. counterparts. Trade between the two countries reached a record $872.83 billion last year. For now, the question is not whether to invest still in North America but rather how much regional content value requirements will shift, and if Mexico and Canada will be able to claw back tariffs on non-USMCA-compliant goods as talks drag on.”
Valeria Moy, general director of the Mexican Institute for Competitiveness: “The USMCA’s first six-year review has concluded without renewal. Mexico and Canada formally expressed their intention to extend the agreement for 16 more years, but U.S. Trade Representative Jamieson Greer announced that Washington would not pursue renewal, opting instead for annual negotiations throughout the treaty’s remaining decade. The treaty remains technically alive—any member can exit with six months’ notice, a clause available to all three partners equally. But Greer’s announcement signals something more deliberate: The United States intends to keep its partners under permanent threat of withdrawal. That is not a trade framework. It is a pressure lever. Mexico’s commercial position nonetheless remains solid. A recent study by the Mexican Institute for Competitiveness argues that in a world where tariffs are here to stay, what matters is relative advantage over competing suppliers—and on that measure, Mexico leads. Only one in six dollars of Mexican exports faces tariff exposure, compared to nine in 10 for China. Mexico’s trade with the United States also reflects deep coproduction: Deficits in sectors such as electronics and electrical equipment are nearly proportional to what the United States exports back in those same sectors. Unwinding that would hurt American industry too. The real cost of this uncertainty, however, is what trade data cannot capture: investment postponed, nearshoring projects stalled and capital quietly seeking more stable destinations. A USMCA on standby is not a dead USMCA, but it is far from the stable framework Mexico needs to fully capitalize on its structural advantages.”
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