U.S. Not Renewing USMCA – What It Means

The Trump Administration decided not to renew the U.S.-Mexico-Canada Agreement (USMCA).

Andrew Moran reported on it in the Epoch Times, quoting the U.S. Trade Representative’s July 1st statement confirming the decision:

“In accordance with the Agreement, the United States, Mexico, and Canada met virtually today to discuss the operation of the USMCA,” U.S. Representative Jamieson Greer said in a statement.

“The United States did not agree to renew the USMCA in its current form. As a result, the USMCA is not renewed.”

July 1 marked a pivotal date for the USMCA. Under the trade agreement’s six‑year joint review, negotiators must decide whether to extend the deal through 2042 or decline to do so—a move that would automatically reopen the agreement and trigger a fresh round of negotiations each year for the next decade.

As all three countries engage in annual reviews moving forward, provisions inside the USMCA will remain in effect until 2036, the White House told reporters on a conference call.

How We Got Here

The successful negotiating and signing of USMCA was a major achievement of President Trump’s first term. It replaced the North American Free Trade Agreement (NAFTA) that politicians on both side of the aisle had long criticized, including several presidential candidates who promised to do away with it.

Bernie Sanders’ presidential campaigns included heavy anti-NAFTA rhetoric, both Hillary Clinton and soon-to-be President Obama promised to do away with NAFTA in their 2008 presidential campaigns, and even going back to Ross Perot getting rid of NAFTA was a central issue in his competitive third-party run for the presidency.

NAFTA did also see bilateral support in its early days. President George W. H. Bush considered NAFTA a major political achievement of his administration and President Bill Clinton resisted pressure from labor unions opposing NAFTA and explicitly endorsed the concept of NAFTA, supporting the agreement with the addition of worker rights and environmental protections. Of course, that did nothing for the loss of U.S. domestic manufacturing jobs NAFTA helped create. Thus, NAFTA became a larger and larger target for both Democrat and Republican political rhetoric.

Despite all the promises to do away with NAFTA, it stayed in place for over two-and-a-half decades until President Trump took office the first time. So why is he now pulling the plug on the deal he replaced NAFTA with? USTR Greer addressed that very question, as quoted in Moran’s article:

“The USMCA did not operate to control the deficit as the president intended,” the senior administration official said. “So that’s really the heart of it, and part of it also extends to market access opportunities in Canada and Mexico.”

NAFTA’s Successor Needed More Success

Indeed, USMCA has not controlled the U.S. trade deficit, particularly with Mexico. That deficit has continued to widen, with Mexico rising to the top trading partner for the U.S. over Canada and China. According to the Alliance for American Manufacturing, the U.S. trade deficit with Mexico nearly tripled from $63B in 2016 to over $171B in 2024.

An Import Genius email newsletter really puts Mexico’s rise with USMCA into perspective:

Thanks to Mexico’s growth, the landlocked Port of Laredo, TX has emerged as a new epicenter of American commerce, handling roughly two-thirds ($354 billion) of all US-Mexico trade. Last year, Laredo surpassed Long Beach, CA, the country’s largest maritime port, in terms of total TEU throughput.

“That statistic really puts the USMCA into clear focus,” says Kanko. “Long Beach receives shipments from every country in the world. Laredo receives shipments solely from Mexico, and it’s become the country’s single busiest port.” 

Tensions with China account for some of the rise in imports from Mexico, but there’s also concern that China is using Mexico as a backdoor for exporting goods to the U.S. While still generally considered a better deal than NAFTA, USMCA also has critics on both side of the aisle and has failed in bringing back the automotive manufacturing jobs to the U.S. that were lost over the course of NAFTA.

Criticisms expand beyond USMCA’s failure to meet its automotive manufacturing job and deficit goals to wage gaps, particularly with Mexico’s much lower wages perpetuating outsourcing from the U.S.; potential loopholes and enforcement limits on labor protections; and lack of environmental language (with a number of progressive politicians, activists, and environmental organizations especially critical about it not using the term “climate change” anywhere in its text).

New USMCA Negotiations Points

A number of negotiating points have emerged with the Trump Administration choosing not to extend the USMCA as it stands:

• tariffs
• automotive rules
• eliminating transshipping loopholes
• bilateral negotiations instead of trilateral
• stricter labor rules and enforcement
• energy and agriculture sectoral issues

We won’t get into all the issues that have come out to be negotiated in USMCA negotiations, but a few are worth highlighting.

It’s not surprising that tariffs will become a focal point of new USMCA negotiations. Tariffs have been a focal point of President Trump’s second term in office. During his first term, tariffs on Chinese goods was a major policy point for the Trump Administration. His second administration expanded that to all U.S. trading partners. USMCA limited the Trump Administrations ability to raise tariffs on Canada and Mexico to counter tariffs and restrictions the countries have on U.S. goods. You know President Trump doesn’t like that.

Clearly, automotive manufacturing is a major point of concern for USMCA as it was with NAFTA. The Import Genius newsletter made a big deal about automotive rules as a contentious issue in negotiations:

A key point of contention in USMCA discussions revolves around automotive rules of origin. The US wants to increase the threshold for tariff-free status from 75% North American origin to a combination of 82% North American and 50% US origin. 

Really, this is a combination of tariff and automotive point of origin rules, and I expect to see at least threats of tariff increases from President Trump to get U.S.-manufactured cars and auto parts priority in amendments to USMCA.

Finally, with Mexico having such an uptick in exports to the U.S. with USMCA, I’d expect intense bilateral negotiations between the two countries. Addressing the wage gap, deficit, and tariffs between the countries should be the tip of the iceberg. Expect Canada to be on the outside looking in when it comes to these negotiations, though trilateral talks and reviews shouldn’t completely go away either.

USMCA Hasn’t Gone Away

It’s been referenced in this post, but I want to make sure it’s clear. The Trump Administration choosing not to renew USMCA does not mean it’s gone. In fact, it doesn’t even mean USMCA is cancelled.

USMCA remains in force and doesn’t expire until 2036 at the earliest. However, the U.S. refusing to grant a long-term extension forces all three countries into annual negotiations with agreements and amendments rolling one into the next. The U.S. and Mexico are scheduled for more bilateral negotiations on it later this month.

A joint review of the deal was triggered yesterday, July 1st, on the six-year anniversary of it coming into force. The Trump Administration could have just rubber-stamped a 16-year extension. Instead, the deal now has required annual reviews as it approaches and will expire in ten years unless an official extension is reached. Meanwhile, all three countries have the right to fully pull out of the deal with a six-month formal notice.

Ultimately, this gives Washington much more leverage in negotiations with the threat of expiration hanging over the deal’s head and perhaps the threat of a six-month cancellation.