USMCA renewal at risk as unpredictable Trump stirs business uncertainty

Vancouver, Canada – As the trade pact among the United States, Mexico, and Canada enters its first mandatory joint review on July 1, experts say the likelihood of renewal has diminished because of the unpredictability of U.S. President Donald Trump.

Trump pushed for a new deal during his first term to replace the North American Free Trade Agreement (NAFTA). The result was the USMCA, which took effect on July 1, 2020, and was set to expire after 16 years.

Now, on the sixth anniversary of the USMCA, the three countries will decide whether to extend the pact for another 16 years. However, the outcome of the review remains unclear, and critics warn that this uncertainty could complicate operations for businesses.

If all three nations do not commit to renewal, an annual review process will be triggered, forcing the USMCA to be discussed every year until 2036.

“We could face mandatory annual reviews, but that also means prolonged uncertainty, and that is a negative factor for business decision-making,” said Tony Stillo, director of Canada economics at Oxford Economics, a consulting firm. “It is certainly a drag.”

That is the scenario analysts now predict will occur after the July review. “The most likely scenario is that the agreement will enter an annual renewal process,” said Vina Nadjibulla, vice president and head of research at the Canada-based Asia Pacific Foundation, a non-profit think tank.

Nevertheless, she noted that the direction of the July talks remains unclear. She pointed to an open question: “Will nothing be agreed until everything is agreed, or will incremental changes be accepted?”

In the worst-case scenario, any party can give six months’ notice and terminate the trade pact entirely. Nadjibulla noted that Trump may be leaning in that direction. “He has said he wishes the USMCA did not exist,” she said.

Trump himself told reporters in early June that he felt the U.S. did not need the trade deal. “I don’t know if I will renew it or not,” he said on June 10. “We are talking to them. We will see if we do something.” A week later, he expressed ambiguity about the U.S. stance: “I would rather have no deal, but I might sign it.”

Unlike Trump, the leaders of Canada and Mexico have both expressed a desire to continue the trade pact. The USMCA has been especially beneficial for these two countries after the wave of tariffs Trump imposed last year upon taking office for his second term. Goods traded under the pact are largely exempt from those additional tariffs.

However, Trump has used other legal tools to levy duties on even USMCA-compliant goods. For example, his administration invoked Section 232 of the Trade Expansion Act, which allows tariffs on products that “threaten to impair” U.S. security. A 50% tariff was imposed on Canadian steel, aluminum, and copper, along with a 25% tariff on the non-U.S. portion of USMCA-compliant automobiles. A 10% tariff was also added to certain lumber products.

Products outside the USMCA’s protective scope face particularly high tariffs. The Trump administration previously used the International Emergency Economic Powers Act (IEEPA) to impose comprehensive worldwide tariffs until the U.S. Supreme Court ruled those tariffs unconstitutional in February. In response, the White House enacted a 10% global tariff based on Section 122 of the Trade Act, which allows the U.S. to address “large and serious” balance-of-payments deficits. The Trump administration has threatened to raise this tariff to 15% in the coming months.

Mexico and Canada are the top two trading partners of the United States. Recently, Canada sends nearly 80% of its exports to the U.S. The USMCA has helped shield much of that trade from Trump’s shifting tariff policies. However, analysts like Stillo in Canada warn that subjecting the USMCA to annual reviews could weaken the economies of the bloc’s members. He suggested Canada would likely push for tariff reductions as part of the USMCA review.

But the USMCA also benefits U.S. businesses, which export products such as auto parts, aircraft, petroleum, and computers to Canada and Mexico. According to data analysis from the Peterson Institute for International Economics, a large share of exports from certain U.S. states to Canada and Mexico are shipped under the USMCA. For example, North Dakota exports 89.9% of its goods to these two countries. Michigan’s share is 64.9%, Iowa’s 50%, and Arizona’s 39%. All four states voted for Trump in the 2024 election.

Overall, the U.S. also relies heavily on exports to Canada and Mexico in specific sectors. Exports such as auto parts, aircraft, and petroleum products generated over $10 billion in revenue last year. 75.6% of U.S. exports of parts and accessories for tractors, public-transport vehicles, cars, and similar automotive equipment go to its two neighbors.

The authors of the analysis, Gary Hufbauer and Ye Zhang, wrote that the outcome of the USMCA review could have significant consequences for these U.S. industries and states. If Trump terminates the agreement, the U.S. could impose additional tariffs on Canadian and Mexican goods, prompting retaliation or a search for domestic or third-party alternatives. “There is a risk to U.S. exports if the USMCA is terminated,” Hufbauer warned.

While the vast U.S. economy could withstand the uncertainty, specific businesses and states might be affected. Hufbauer cautioned that the consequences extend beyond economics; a failed review could cause long-term damage to cross-border relations. “The bigger impact for the U.S. is the breakdown of alliances and friendships around the world. The political dimension is much larger than the economic one in this matter,” he said.

Stillo sees the USMCA review as part of a broader global restructuring, where traditional alliances are being tested. “We are in a much more fragmented world. It is not exactly de-globalization, but we are certainly seeing the breaking up of regional blocs,” he said. For Canada specifically, economic uncertainty may push leaders to seek additional trading partners. “We will always trade with the U.S., but now is the time to diversify,” Stillo concluded.