- The US announced Wednesday it will not renew USMCA — the trade deal Trump once called “the best and most important trade deal ever made” — on its six-year anniversary, instead opting for annual rolling reviews that keep the pact technically alive for up to another decade but open the door to years of contentious renegotiation over supply chains, tariffs, and rules of origin.
- USTR Jamieson Greer said the administration is “not prepared to rubber stamp the agreement” and that there are “substantial issues,” citing trade deficits with Mexico and Canada that USMCA did little to address and provisions protecting large sections of trade from the tariffs Trump sought to impose in his second term.
- Bloomberg Economics warns the rolling-review structure gives Trump an “implicit threat of roughly doubling tariffs on Mexico and Canada” as leverage — a significant escalation risk for a trade relationship covering $1.6 trillion in annual intraregional commerce (up from $1 trillion when USMCA launched in 2020) among three countries representing nearly a third of global GDP.
- Key flashpoints for renegotiation include tighter rules of origin for autos (to block Chinese input transshipment through Mexico), Chinese investment thresholds in Canada and Mexico, and labor standards enforcement — while the auto industry, retailers, and the US Chamber of Commerce are already urging governments to preserve the existing framework and its supply chain certainty.
What Happened?
On the six-year anniversary of USMCA’s inception Wednesday, the US announced it would not extend the agreement by 16 years as the treaty allowed — instead shifting to annual reviews. USTR Jamieson Greer said the administration sees “substantial issues” with the deal, citing trade deficits with both Mexico and Canada and the deal’s broad tariff exemptions that limit Trump’s leverage over trading partners. The USMCA will remain in force for up to another decade under annual reviews, but if no resolution is reached, the pact expires in 2036. Canada expressed support for renewal and flagged continued interest in addressing sectoral tariffs on steel, aluminum, autos, and lumber. Mexico’s economy minister downplayed the decision, noting any country can exit USMCA with six months’ notice and arguing Washington’s position should not be read as a prelude to withdrawal. The US and Mexico will meet for a third round of formal talks the week of July 20, covering rules of origin for industrial goods, aerospace, IP, and water quality.
Why It Matters?
USMCA has been the primary stabilizer of North American trade in an otherwise turbulent period — its broad tariff exemptions cushioned Mexico and Canada from Trump’s sweeping second-term tariff agenda. Choosing rolling reviews over renewal removes that stability without removing the underlying economic interdependence: roughly 90% of imports from Canada and Mexico are now USMCA-compliant, and supply chains built around the agreement span automotive, agriculture, energy, and retail sectors that run on 30-year investment horizons. The decision introduces structural uncertainty that companies cannot easily price in. Bloomberg Economics’ characterization of an “implicit threat to double tariffs” is particularly significant for auto manufacturers like GM and Toyota whose North American supply chains depend on frictionless cross-border movement of components.
What’s Next?
The July 20 US-Mexico talks will be the first test of whether the rolling-review structure produces substantive progress or becomes a prolonged leverage exercise. Canada remains largely sidelined from bilateral talks while Trump feuds with Prime Minister Carney — and Washington’s complaint about Canada sending “mixed messages” by seeking Chinese investment while claiming to support US reindustrialization will be a persistent irritant. The core structural tension is China: the US wants tighter rules of origin to prevent Chinese auto parts and other inputs from entering the US tariff-free via Mexico and Canada, while both neighbors want economic relationships with Beijing that Washington views as incompatible with USMCA’s security-of-supply-chain rationale. Absent a forcing mechanism for agreement, the decade-long runway could become a decade-long negotiation with no resolution.
Source: Bloomberg
