The Retired Investor: USMCA Turbulence Straight Ahead

The U.S.-Mexico-Canada Agreement (USMCA) is up for review on July 1, 2026. If all three countries agree, the present deal could be extended for another 16 years. If not, the agreement can continue or not.

 

The amount of trade involved is significant. Last year, because of the agreement, Mexico became the U.S.'s top trading partner, with total bilateral trade totaling $873 billion (15.6 percent of all goods exported and imported by the U.S.). Canada comes in second place with $719 billion worth of trade (12.8 percent of goods).

 

Both countries have surpassed China, which fell to third place. Both countries are America's largest sources of imports and account for one-third of U.S. goods exports. The USMCA is the world's most integrated manufacturing bloc.

 

Old timers may remember the North American Free Trade Agreement, which went into effect on Jan. 1, 1994. Prior to that, Canada and the U.S. had hammered out a free trade agreement in 1988. Things appeared to be going quite well until Donald Trump hit the scene. During the 2016 presidential campaign, Trump blamed NAFTA for the country's trade deficit with Mexico and for the loss of American jobs.

 

As was his way, Trump demanded NAFTA be renegotiated, or he would walk away from the pact. Negotiation began in August 2017 and took more than a year before all parties agreed to a deal. It was less an overhaul of NAFTA than a modest adjustment despite the president's demands and later claims. The name was changed to the United States-Mexico-Canada Agreement and was ratified on July 1, 2020.

 

The required review of the pact was expected to be a formality and, at worst, a technical review, but nothing that has to do with trade under Trump's second term is anything but. This time, it is Canada, not Mexico, that is at loggerheads with American officials. Readers may recall that when Trump launched his global trade war last year, many economists had predicted enormous damage.

 

It didn't happen for one important reason — USMCA. Much of American trade is protected under the trade pact. Autos, natural gas, crude oil, lumber, and much of the manufacturing base were sheltered thanks to the extended supply chains that encompass North America. This pipeline of goods required time, effort, and enormous investments that required decades to build.

 

Trump's tariff wars have ignited deep tensions between all three countries. Trump has blamed America's fentanyl addiction on both countries. Tariffs on both trading partners on steel, aluminum, autos, lumber, and more have been met by retaliation. Prime Minister Mark Carney has said these tariffs violate their trade agreement. Canadian provinces agree. As a result, they have banned U.S. wine and liquor imports. Canadians, in general, are more than irritated with Trump's policies and trashing of their country in comments and on social media. Many have crossed off the U.S. for vacation rentals and second homes as a result.

 

A major sticking point is the back-door policies of China and other foreign countries to use both Mexico and Canada to avoid tariffs by funneling goods into the North American market under the free trade agreement. That does not sit well with Canada, which has recently established new trade agreements with China.

 

Recently, United Auto Workers' President Shawn Fain spoke out against the renewal of USMCA unless big changes were negotiated. The head of the 400,000-member union, like Trump before him, blames the trade agreement and NAFTA before it for the loss of millions of American auto manufacturing jobs.

 

He wants to set a North American minimum wage that would guarantee Mexican auto workers would receive equal pay with their American counterparts. He would also like to see tougher penalties for violations of workers' rights and quotas requiring more vehicles to be manufactured in the countries where they are sold.

 

Fain is one of the few voices in the auto industry that supports higher tariffs on autos. In reply, auto company executives argue that Fain's recommendations would only increase car prices at a time when few Americans can afford them, while destroying a supply chain system that took decades to build.

 

Negotiations on the pact have thus far only included Mexico. The UAW's recent stance may complicate negotiations with Mexican officials. As for Canada, Carney has told U.S. officials that Canada is not interested in making further concessions to join the discussions. However, this week, Dominic LeBlanc, Canada's Minister of Trade, and Janice Charette, the country's chief trade negotiator, met with U.S. Trade Representative Jamieson Greer.

 

Canada presented specific, detailed trade proposals, though the meeting did not mark the start of formal negotiations. LeBlanc admitted that "This trip has not been without some turbulence." The delay in starting discussions, with a deadline less than a month away, led some to believe that there is a possibility that two separate trade agreements may be required, one for the south and another for the north.

 

Foreign car companies have threatened to pull their cheapest models out of the U.S. market if the three-country trade deal isn't renewed or if it is renegotiated along the lines of the UAW's wishes. Nissan, Hyundai, and Toyota are part of only a handful of car manufacturers offering small, more affordable cars for U.S. consumers.

 

Given what is at stake, the odds of the trade pact surviving July are high. Looking at past treaties, negotiations always took longer than the allotted time before a deal was struck. In this case, if no agreement is reached by the deadline, the deal continues under Article 34.7 of the USMCA but shifts to annual reviews rather than the 16-year period ending in 2042. If that were the case, investment in supply chains, the broadening of cooperation to include areas such as digital trade, IP, and regulatory cooperation would likely erode due to the uncertainty involved in annual reviews versus a 16-year time horizon.