The United States refused to extend its trade pact with Canada and Mexico before a July 1 deadline, instead starting a process that could result in a new agreement or a succession of annual reviews that would harm investment.
Under the 2020 United States-Mexico-Canada Agreement, the three countries had until Wednesday to extend their agreement for 16 years or continue negotiating possible revisions. U.S. and Mexican officials are scheduled to hold their third round of talks the week of July 20 in Mexico City.
Official talks with Canada have not yet begun. Relations between Washington and Ottawa have cooled over the past year, amid President Donald Trump’s jibes about making the U.S. neighbor the “51st state” and Canadian retaliation over U.S. tariffs. If no deal is reached, the North American trade deal would be subject to annual reviews for a decade before expiring in 2036, an outcome few foresee.
On Wednesday, Jamieson Greer, the top U.S. trade negotiator, carried out the mandatory review of the agreement during a virtual meeting with his counterparts from Mexico and Canada. The United States blocked a possible extension and “will continue to work with Mexico and Canada to address the Agreement’s deficiencies and our trade deficits with these countries,” Greer said in a statement.
“In theory, they could do it every year for the next 10 years. But I think the administration wants this resolved before the end of the year,” said Dan Ujczo, a business attorney in Columbus, Ohio.
For more than three decades, American presidents of both parties promoted a regional trade model based on the reduction or elimination of most tariffs on goods that circulate between the three North American nations.
But Trump discarded that approach and imposed new tariffs on products from Canada and Mexico, affecting steel, aluminum, copper, heavy vehicles and other goods not covered by the USMCA. The administration considers these actions more significant than the update of the three-party trade agreement that Trump reached during his first term.
“The president has already changed the dynamic between the United States, Canada and Mexico. I would say he has already subsumed the USMCA under new trade and tariff policies,” declared a senior administration official, who spoke on condition of anonymity to brief the press.
Just six years ago, Trump celebrated the USMCA at a White House ceremony as “the largest, fairest, most balanced and modern trade agreement ever reached.” But he now frequently denigrates the deal, suggesting it could withdraw the United States from it and disrupt nearly $2 trillion in annual trade in goods and services.
Angered by the growing trade deficit with Mexico, Trump is seeking new conditions that would boost auto production in the United States and limit China’s ability to circumvent American tariffs by shipping goods to American customers through Mexico. Canada and Mexico hope to avoid the tariffs imposed by Trump in his second term, but a full exemption appears unlikely.
Prolonged uncertainty over North American trade rules would have little impact on the U.S. economy but would likely depress investment in its two neighbors, a possibility that does not worry the Trump administration. Companies worried about the risks of investing in Canada or Mexico should build new factories in the United States, a senior government official said.
The prospect of a partial overhaul of the USMCA, which replaced the 1994 North American Free Trade Agreement (NAFTA), could already be raising questions among boards of directors. U.S. foreign direct investment in Mexico last year was $15.9 billion, a slight decrease from the $16.5 billion projected for 2024.
Limiting China’s indirect access to the US market is a key aspect of the USMCA review. Mexico has already increased tariffs on Chinese imports. The Trump administration is now seeking to establish a common stance on export controls and investment limits affecting China.
“For national security reasons… I want our supply chain to come from this hemisphere… from North America. That’s where we want it to be,” Greer told the Council on Foreign Relations in May.
American automakers have the most at stake in the ongoing review. Vehicles made by companies such as General Motors and Ford cross the Mexico-Canada border several times before completion. Therefore, the USMCA tariff-free treatment is vital to its operations.
Trump’s trade policies have already harmed the national production that he himself defends, according to industry executives. American vehicle and auto parts factories have eliminated more than 21,000 jobs since the USMCA came into force.
According to industry executives, under the “reciprocal trade” agreements reached by the administration with Japan, South Korea and the European Union, it is cheaper to send vehicles produced in those markets to the United States and pay the corresponding tariff than to manufacture them in the country.
Additionally, many Japanese models sold in the U.S., such as the Nissan Armada and Toyota Land Cruiser, do not contain U.S. components, according to the National Highway Traffic Safety Administration (NHTSA).
“American automakers are currently at a disadvantage… We urge a swift and lasting resolution that ensures a level playing field and provides the long-term certainty needed for capital-intensive investments in the auto sector,” said Matt Blunt, president of the American Automotive Policy Council.
In the USMCA review, government officials proposed that half of a vehicle’s components be made in the U.S. so that lower tariffs would apply. The US is also pushing to increase the percentage of North American content to more than 80%, from the current 75%.
Automotive executives have said they would have difficulty meeting these more ambitious goals. After decades of offshoring, some auto parts, such as wiring harnesses, are not available in large quantities on the domestic market.
The White House, stating that it continues to work with the industry, defended the president’s position.
“No president has done more to revive the American auto industry than President Trump, who has pushed an aggressive agenda of auto tariffs, rapid deregulation, tax cuts and even a new tax deduction on interest on American-made cars,” said White House spokesman Kush Desai.
As the White House seeks an updated deal, some industry representatives complain they have lost their traditional access to negotiations. The official charters of 16 industry trade advisory committees expired earlier this year.
In May, the administration announced it would appoint new industry panels “soon.” Until that happens, however, executives who previously had government authorization to review draft agreements during negotiation and offer suggestions remain on the sidelines, they said.
“The administration has not demonstrated its willingness to collaborate in a comprehensive and structured way with the industry, and I hope that this does not lead to poor results in terms of trade policy,” said a manufacturing executive.