U.S. declines to extend USMCA trade pact, opening decade-long review

The United States has declined to extend the USMCA trade pact in its current form, setting off a decade-long review process that could reshape trade across North America if Washington, Mexico City and Ottawa fail to agree on changes.

The decision does not immediately end the U.S.-Mexico-Canada Agreement, which replaced NAFTA in 2020 and remains in force. But it prevents the pact from being automatically extended for another 16 years and moves the agreement into annual review sessions. Without a deal among the three countries, the USMCA trade pact would expire on July 1, 2036.

The move had been widely expected as the Trump administration pushes for revisions aimed at strengthening U.S. manufacturing, tightening regional content rules and limiting the ability of Chinese goods to benefit from North American trade preferences.

Trade officials from the United States, Mexico and Canada were expected to use the July review to state whether they wanted to extend the agreement. Mexico and Canada have signaled support for keeping the pact in place, while Washington has opted to keep negotiations open rather than endorse an extension under the current terms.

U.S. Trade Representative Jamieson Greer has not announced a final package of proposed changes, but the United States has already scheduled further talks with Mexico for the week of July 20. Those negotiations are expected to focus heavily on automotive rules of origin, regional content requirements and measures aimed at preventing transshipment through North America.

The auto industry is at the center of the dispute. North American automakers have urged the three governments to preserve the USMCA trade pact as a trilateral framework, arguing that parts and components often cross U.S., Mexican and Canadian borders several times before final assembly.

Washington is seeking stricter requirements for vehicles to qualify for preferential treatment. According to people familiar with the discussions, the United States has proposed that vehicles built in North America include 50% U.S.-specific content, a change that could push broader regional content requirements to about 82%.

The proposal would mark a major shift for automakers operating in Mexico and Canada. Even under a revised framework, vehicles assembled in those countries could still face some level of U.S. tariffs, according to comments from U.S. officials.

A Mexican official said the United States and Mexico have also discussed the possibility of a 15% global tariff on autos, with a lower rate for vehicles from Mexico and Canada if the countries agree to stricter rules of origin. The official said both governments broadly agree on the problems facing the agreement, including declining U.S. manufacturing employment, falling U.S. content in vehicles and concerns over transshipment.

For now, formal U.S. negotiations have focused mostly on Mexico, while Canada remains outside the main negotiating rounds. Ottawa and Washington continue to face bilateral trade irritants, including Canada’s dairy market, softwood lumber, steel, aluminum and provincial restrictions affecting U.S. liquor sales.

Canadian Prime Minister Mark Carney said he expected a constructive exchange among the three countries but did not expect an agreement to be signed immediately. He said Canada was ready to negotiate improvements to the pact.

Mexico’s economy minister, Marcelo Ebrard, said he did not expect the agreement to be scrapped. President Claudia Sheinbaum also said she had signed a letter calling for the USMCA trade pact to be extended for another 16 years.

The review comes as U.S. tariff policy has already weakened the duty-free framework that underpinned North American trade. The Trump administration has imposed 25% tariffs on autos and auto parts from Canada and Mexico, as well as 50% tariffs on steel and aluminum from the two countries, prompting retaliation from Canada.

The uncertainty is especially important for manufacturers, agribusinesses, energy companies and logistics operators that depend on predictable cross-border trade flows. Supply chains across the region are deeply integrated, particularly in autos, where components move repeatedly across borders before reaching final assembly plants.

The USMCA review process is separate from the agreement’s termination clause. Any of the three countries could still trigger withdrawal from the pact with six months’ notice. For now, however, the U.S. decision places the agreement in a prolonged negotiation cycle rather than ending it outright.

The coming months are expected to determine whether the three countries can agree on revisions that preserve the trilateral framework or whether North American trade enters a longer period of uncertainty. For companies moving goods across the region, the main risk is not an immediate collapse of the USMCA trade pact, but a slower erosion of the investment certainty that has supported cross-border production since the NAFTA era.

Source: Reuters

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