Challenges and Changes in North American Trade under the USMCA

Tourists from Chattanooga book resorts in Cancun, Canadian auto parts supply factories in the Central United States, and tequila and mezcal from Mexico are enjoyed in Seattle bars. All these elements contribute to a shared economic landscape. The United States engages in trade worth $1.9 trillion annually, equating to $5 billion daily, with its neighbors Canada and Mexico. These nations have now surpassed China as America’s top trading partners.

The stakes are high when adjusting the rules governing trade among the three countries. Following a year of chaotic tariff policies under President Donald Trump, many businesses in the US, Canada, and Mexico would appreciate a return to stability across North America. However, this appears unlikely.

The regional trade agreement, known as the United States-Mexico-Canada Agreement (USMCA), which Trump negotiated and touted during his first term, faces a scheduled review on Wednesday. This process may extend over many months or even longer.

Diego Marroquín Bitar, a researcher at the Americas Program of the Center for Strategic and International Studies, stated last week, ‘There’s going to be a lot of drama this summer’ at a USMCA forum hosted by the Cato Institute.

Potential Obstacles for North American Trade

The United States is making demands that could force Canada and Mexico to transfer part of their automotive production to the US, potentially increasing jobs at American car plants. However, this could disrupt established supply chains and increase US vehicle prices, which currently average nearly $50,000. American consumers are already frustrated with the high cost of living.

Trump has increased the tension by threatening to withdraw entirely from the agreement he once praised.

The USMCA’s Renewal and Review Process

In 2020, the USMCA replaced the 1994 North American Free Trade Agreement (NAFTA), which eliminated most trade barriers among the three North American countries. Trump and others criticized NAFTA as a job destroyer that encouraged US companies to relocate factories south of the border to exploit Mexico’s lower-wage labor, returning goods to the US tariff-free.

The USMCA largely resembles NAFTA, albeit with requirements for factories to pay higher wages and ensure more of their production originates in North America, aiming to prevent Chinese products from entering the regional market duty-free.

The North American trade agreement undergoes a review every six years. This period ends on Wednesday, but according to Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness, ‘nothing will happen on July 1.’ Negotiators could agree to renew the USMCA as is for another 16 years, but this is unlikely. Instead, they’ll likely continue exploring ways to improve it. They have until 2036 to finalize an agreement, or it will expire.

Meanwhile, any USMCA country can withdraw from the pact with six months’ notice to its two partners. This is a major concern for Canada and Mexico, who heavily rely on trade with the US, fearing Trump might pull this alarm. Trump declared in June his disinterest in renewing the agreement with Canada and Mexico, stating, ‘We don’t need anything they have.’

Ocampo suspects Trump does not truly want to leave the treaty, but wants to maintain pressure on Mexico over security and immigration issues.

Canada on the Sidelines

The US and Mexico have engaged in discussions about renewing the trade agreement, but Canada has been largely sidelined. ‘The danger for Canada is that the US and Mexico may reach an agreement on central changes to the treaty and then present it to Ottawa with an ultimatum,’ warned Patrick Childress, a partner at Holland & Knight and former US trade negotiator.

Canadian Prime Minister Mark Carney mentioned the three trade partners plan to meet virtually on Wednesday, and added, ‘I am not reaching for my pen.’ Carney later mentioned in French that his priority is updating the USMCA.

Pushing Production to the US

The United States wants an updated trade deal that better prevents Chinese goods from entering indirectly. The most contentious issue is the US push to ensure more products are made in North America, particularly in the US.

The USMCA requires that automotive products be manufactured 75% in North America, an increase from NAFTA’s 62.5%, to qualify for tariff-free treatment. The US wants to raise this threshold further, but manufacturers have fine-tuned their supply chains to meet the 75% mark. They need time to adjust to a higher standard.

The US also seeks a new requirement, confirmed by Carney in early June, that 50% of cars be made in the US. Currently, no USMCA country has a guaranteed production quota. ‘This is a red line for both Mexico and Canada, contradicting the spirit and letter of regional integration,’ said Ocampo.

According to Marcos Carias, an economist at the credit insurer Coface, only one in five Mexican and Canadian cars imported to the US meet the 50% standard. Vehicle models likely to face higher costs under the plan include Ford’s compact Maverick pickup, Chevrolet’s mid-size Equinox SUV, and some Nissan sedans, all made in Mexico. Carias estimates prices might rise 5% to 7% for the most affected models.

Companies Seeking Stability

Many companies simply want relief from Trump’s fluctuating tariffs. ‘My interest in this USMCA renewal is consistency,’ remarked Shawn Miller, co-founder of PKGD Group, which imports agave-based beverages from Mexican family producers. ‘If rules change, they change. But we want to know what they will be and wish they remain unchanged for a while.’

PKGD is thriving. The Holland, Michigan-based company saw a 62% increase in sales this year, following a 100% rise in 2025 and a 300% jump in 2024. However, last year was chaotic.

In February, Trump imposed a 25% import tax on Mexican and Canadian goods, only to reverse course a month later and exempt items eligible for USMCA’s preferential treatment. The treaty allows Mexican beverages to enter the US duty-free.

Amid the confusion, three truck shipments of Mexican beverages imported by PKGD crossed into the US and incurred the 25% tariff, costing $105,000.

Fearing future tariffs, PKGD consulted its Mexican producers to devise a response strategy. ‘What can we absorb? What can they absorb?’ pondered Miller. He noted that he and his Mexican suppliers ‘are not large multinational corporations with dedicated trade departments, legal teams, or lobbyists focused on trade policy.’

AP journalists Maria Verza in Mexico City and Rob Gilles in Toronto contributed to this story. This article was translated from English by an AP editor with the assistance of generative artificial intelligence.