In just a few weeks, the US and Mexico will begin the first bilateral negotiating round to discuss the future of the US-Mexico-Canada Agreement. The initial high-stakes joint review of the trade agreement will take place in July. This performance review, so to speak, is mandated in the initial deal, and if the terms are still believed to be satisfactory for the countries, the deal will be reaffirmed until 2042.
That said, there is also the possibility that the sides don’t agree, and if that’s the case, then that will trigger a 10-year countdown of sorts. Every year, the parties will meet to discuss the deal and resolve differences. If, still, in those 10 years, these differences are not resolved, USMCA will formally be terminated in 2036.
So what are the biggest concerns as the US heads into its first round of negotiations? Well, as one would likely surmise, President Trump’s tariffs remain one of the focal points. As the Council on Foreign Relations notes, Trump’s passion for USMCA has waned as his Administration has implemented tariffs through the International Emergency Economic Powers Act (IEEPA) and Section 232. Now, while the Supreme Court struck down the President’s use of IEEPA, Section 232 on steel and aluminum imports remains in place.
These tariffs also left both Canada and Mexico frustrated with the US. Canadian Prime Minister Mark Carney said these duties contributed to the “rupture” in North American relations. It also led to Canada and Mexico creating their own strategic partnership last September.
The Council notes these negotiations will also reveal where things stand in terms of the relationship between these three countries. When the deal was initially put in place, America’s relationship with Mexico was more in flux; this time around, the focus is on Canada. Especially as these tariffs have ushered in a new wave of patriotism in Canada. For instance, Bloomberg notes America’s distilled spirits industry has lost 70% of its exports to Canada as some provinces refuse to put American products on the shelves.
While experts at Bloomberg and the Center for Strategic and International Studies believe the deal will be extended in or around this July 1 review, experts do think it won’t be a quick and painless process. Fair trade groups are calling for changes to the deal, and President Trump may likely threaten Mexico and Canada with Sections 232, 301, 201, and 338 to impose additional tariffs. This may mean some major concessions for both America’s neighbors to the North and South.
The Council on Foreign Relations suggests one possible outcome is the US having Mexico and Canada adopt a similar approach to China. Whether it’s tariffs, export controls, or investment limitations.
Given the possible outcomes from this review, the Atlantic Council notes one of the biggest concerns could be for auto manufacturers. The group suggests these businesses should rethink production footprints, strengthen US hubs, shift from just-in-time models to inventory buffers, invest in dual sourcing, and monitor supplier solvency. The companies that will be best positioned for a possible worst-case scenario would be those that treat the next couple of months as an opportunity to plan for the worst, rather than just waiting and seeing what happens.
No matter what, the US-Mexico-Canada Trade Agreement is in place until 2036, so it is just a matter of whether it will be extended an additional six years, until 2042.