In what many global trade stakeholders viewed as expected, the United States yesterday said, in a joint review of the USMCA (United States Mexico Canada Agreement), that it did not agree to renew the USMCA in its current form.
“As a result, the USMCA is not renewed,” said United States Trade Representative Ambassador Jamieson Greer in a statement. “The United States will continue to engage with Mexico and Canada to address the Agreement’s shortcomings and our trade deficits with these countries. However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination. As previously announced, the United States will meet with Mexico the week of July 20 for a third round of bilateral negotiations related to the USMCA joint review.”
The USMCA agreement went into effect on January 29, 2020, during President Trump’s first term in the White House, replacing its predecessor, the North American Free Trade Agreement.
USMCA, in various ways, is based on many of the same rules, procedures, and products as NAFTA, which took effect in 1994. Analysts say that it includes stronger environmental and labor regulations and incentivizes domestic production of cars and trucks. It is also the first free trade agreement to include intellectual property protections, which are especially timely given the current trade wars triggered by the alleged theft of American intellectual property by China and other nations.
Former United States Trade Representative Robert Lighthizer said at the time that USMCA marked a significant improvement over NAFTA through its objectives to create more manufacturing jobs, protect America’s competitive advantage in technology and innovation, secure greater market access for American businesses, farmers, and ranchers, and, critically, change the stale politics of trade by creating bipartisan consensus around a new model that works better for all Americans.
With the U.S. electing to not renew the USMCA in its current form, the agreement will remain intact until 2036, and it will not enter a period of annual reviews that start in 2027, noted a Reuters report. The report added that during those annual reviews, the U.S., Canada, and Mexico are able to negotiate amendments, agree to extend the agreement, replace it with a new arrangement, or one nation could separately choose to withdraw under USMCA’s withdrawal provisions.
According to the Office of the USTR, goods qualifying under the USMCA’s rules of origin have 0% tariffs on most trade between the three countries. And with the current 10% Section 122 tariffs on non-qualifying goods set to expire on later this month, non-USMCA goods could go back to standard MFN (Most Favored Nation) rates of 3%-to-4%, noted Jade International, while 50% Section 232 tariffs on steel and aluminum remain intact. For goods that do not qualify under USMCA, they are generally subject to a 25% tariff, noted United States Customs and Border Protection (CBP).
Keith Prather, Managing Director and Co-founder of Armada Corporate Intelligence, told LM that this annual renewal approach allows the U.S. to take on trade relations and policy with Canada and Mexico independently, while pointing out a high level of animosity between President Trump and Canadian Prime Minister Mark Carney and a willingness to work with Claudia Scheinbaum, President of Mexico—adding that the Trump wants Mexico negotiating as a single country and not with the additional power and positioning of Canada alongside Mexico.
“Trump needs to protect UAW workers (and many Republicans who have auto manufacturing in their districts) headed into mid-terms,” said Prather. “But he also needs to protect the southern border and an economically strong Mexico (with a government willing to crack down on cartels) is vitally important. Those two are countervailing, and it is pushing him to play a bit tough, and push the USMCA into an annual review cycle. But the principles in the agreement are in place until 2036 at least, unless he opts for an Article 34 withdrawal—and it would be economic and political suicide to do that. That doesn’t mean that he wouldn’t go to that length, but I don’t think executives are changing their FDI (Foreign Direct Investment) into Mexico based on that risk (the probabilities of a rolling, tweaking, annual adjustment to the agreement out-weigh the odds of a full withdrawal). Therefore, we get annual ‘tweaks.’”
As for what could be viewed as the biggest risk, Prather said it could be that some FDI could sit on the sidelines in the near-term, waiting on clarity from the annual review process, with the caveat that it may not shift existing sourcing or slow down long-term sourcing plans. And he also noted that an unfortunate side effect of this development is that industry stakeholders now need to keep a close eye on every announcement and side agreement between the three nations.
“The only good thing is any tariff action will come through an official Section 301 investigation (as we have seen recently) or a new Section 232,” he said. “At least those typically come with a lot of warning, but they can have an impact for sure.”
And when it comes to sourcing going forward, Pete Mento, Director of Global Trade Services, at Baker Tilly, observed in a LinkedIn post that the biggest supply chain takeaway is that every sourcing made today should come with an asterisk.
“Expect more North American content requirements. Expect more scrutiny. Expect more compliance,” wrote Mento. “And expect the phrase “strategic supply chain” to appear in approximately 487 PowerPoint decks by Friday. The good news? USMCA is still in effect. The bad news? Your sourcing strategy just got invited to couples’ therapy.”
In comments provided to LM before yesterday’s announcement, Andrew Williams, DHL Express Americas CEO, cited the company’s saying, “trade is like water, it always finds a way,” adding that if the USMCA is ultimately not renewed, companies will continue to do business across North America—but moving from a trilateral framework to separate bilateral agreements could add complexity for cross-border operations, particularly around customs, compliance, sourcing, and transportation planning.
“No matter the outcome of the joint review, DHL’s role remains the same: to help customers understand policy changes, adjust their networks as needed, and keep goods moving as efficiently as possible,” said Williams.
From the perspective of Eric Fullerton, VP of Data Insights at project44, the impact cannot be understated, in that the last thing the market needed, following 18 months of tariff turmoil and a three-month-plus Strait of Hormuz disruption, was another major blow to planning confidence across supply chains.
“Annual trade negotiations create operational uncertainty, and uncertainty is expensive,” said Fullerton. “Companies can’t confidently plan sourcing strategies, transportation networks, and supplier relationships around rules that could look different in 12 months. The ones that manage this well won’t be waiting for certainty to arrive. They’ll be the ones who can see what’s actually moving across their network right now and make decisions off that instead of off assumptions.”
But Chris Rogers, Research Director for S&P Global Market Intelligence, said that this action by the White House is not a surprise, given President Trump’s prior negotiating tactics.
“We had not expected a resolution to negotiations in 2026 anyway,” said Rogers. “We would expect shippers to continue with business-as-usual until a formal notice to terminate the deal is made.”
