The U.S. Trade Pact Faces Uncertain Future
U.S. President Donald Trump's administration is expected to announce that it will not extend the U.S.-Mexico-Canada Agreement (USMCA), setting in motion a decade-long process to potentially dismantle the 32-year-old North American free trade zone. This decision comes as the three countries continue to negotiate over proposed changes to the agreement, including demands for increased regional content in automotive production and trade protections against Chinese goods.
The announcement will initiate a six-year review period, which is part of a "sunset clause" negotiated during Trump’s first term. However, this move is unlikely to significantly impact ongoing negotiations, especially regarding key issues such as boosting U.S. and regional content in North American automotive production and implementing measures to block Chinese goods from benefiting from USMCA.
Trade officials from the U.S., Mexico, and Canada are set to meet virtually to determine whether they want to extend the pact for an additional 16 years. A spokesperson for U.S. Trade Representative Jamieson Greer has not made any formal announcement about the U.S.'s stance on USMCA. However, Greer has scheduled a third round of negotiations with Mexico for the week of July 20, indicating his intention to continue pushing for changes.
Greta Peisch, a former USTR general counsel now working at Wiley Rein in Washington, said she expects the U.S. to not confirm its wish to extend USMCA by July 1. She also noted that it remains unclear whether the U.S. will publicly state its specific demands in a statement following the meeting.
Mexico’s economy minister, Marcelo Ebrard, stated that he does not expect the trilateral trade agreement to be scrapped. Mexican President Claudia Sheinbaum also signed a letter calling for the extension of USMCA for 16 years. Canadian Prime Minister Mark Carney expressed hope for a "constructive exchange" between the three countries but emphasized that no agreements would be signed immediately.
"The priority is to get a new deal," Carney said. "We're ready to negotiate an improvement of this agreement."
Tariffs and Retaliation
Trump has already imposed tariffs of 25% on Canadian and Mexican autos and parts and 50% on steel and aluminum from both countries, leading to retaliatory measures from Canada. Although Canada has not yet participated in formal negotiations with the U.S., technical talks on aluminum, steel, autos, and softwood lumber have resulted in some improvements.
"So we're ready to continue those discussions but that will take time, which we've known for a while," Carney added.
Failure to reach an agreement on revisions to USMCA could leave the trade pact in an indefinite limbo, with annual review sessions for the next 10 years, after which the North American trade pact would expire on July 1, 2036.
The review and sunset process, which was controversial when enacted, is separate from a termination clause that could allow the U.S., Mexico, or Canada to withdraw from the pact within six months.
Trump’s Discontent with USMCA
Trump initially praised USMCA as "the fairest, most balanced and beneficial trade agreement we have ever signed into law." However, he quickly became dissatisfied as the U.S. goods trade deficit with Mexico expanded, partly due to companies shifting supply chains away from China after Trump imposed steep tariffs on Chinese goods.
Trump has repeatedly expressed his desire not to renew USMCA, favoring instead the tariffs he has imposed on Mexican and Canadian autos, steel, and aluminum.
Bilateral Talks and Industry Concerns
For now, the U.S. is holding formal negotiations with Mexico only, excluding Canada amid ongoing bilateral trade disputes, including Canada’s restricted dairy market and Canadian provinces removing American liquor from store shelves.
Greer has not planned any formal trade negotiations with Canada but has engaged in regular discussions with Canadian trade minister Dominic Le Blanc.
North American automakers have urged the Trump administration to maintain the trade pact as a trilateral agreement, highlighting the complex supply chains that involve multiple crossings across the northern and southern U.S. borders before vehicles are assembled.
Matt Blunt, president of the American Automotive Policy Council, called for a swift and durable resolution to provide investment certainty and a level playing field. He noted that U.S. automakers face a disadvantage compared to imports from countries with lower tariffs and fewer rules of origin.
In negotiations with Mexico, the U.S. has demanded that all North American-built vehicles contain 50% U.S.-specific content, which would increase regional required content to 82% to qualify for U.S. benefits. Vehicles assembled in Mexico and Canada would still likely face some level of tariffs, according to Greer.
A Mexican official mentioned that the U.S. and Mexico have discussed a universal global tariff of 15% on autos, with a lower rate for vehicles from Mexico and Canada if they agree on stricter rules of origin. The official noted that both countries broadly agree on USMCA’s challenges, including declining U.S. manufacturing jobs and concerns over transshipment.
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