“This is probably the largest reframing of North American relations in modern history,” Diego Marroquin, a lead researcher on the United States-Mexico-Canada Agreement (USMCA) at the Centre for Strategic and International Studies, tells Investment Monitor.
The USMCA is coming up for renewal in July. A renegotiation of the deal that replaced the North American Free Trade Agreement is now likely to go on for longer and become more complicated, as issues that used to be addressed separately – such as immigration and security – are now discussed alongside trade disputes. The talks are also coming at a time when US officials, and those in the US Trade Representative Office (USTR) in particular, are busy dealing with an array of issues, including the fallout from the war in the Middle East, the expansion of trade investigations and the cancellation of International Emergency Economic Powers Act (IEEPA) tariffs.
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With less time and resources to dedicate to the agreement that underpins North American trade, an ecosystem of continued uncertainty for investors, importers and exporters will continue to be the norm.
Large consensus on renewal, but delay expected
The North American countries do not have to finalise negotiations by 1 July; rather, they have to decide whether they want to renew the USMCA in the first place. If they agree to renew, the next review will occur in 2032. If not, the agreement enters annual renewal cycles after which it will expire in 2036.
There is strong business support for the first option, which offers investors the most certainty and creates a more secure environment for long-term projects. Last year, when the USTR opened a consultation regarding the renegotiation process, it received more than 1,500 submissions.
However, stakeholders are preparing for a lengthy negotiation process, with many expecting the main points of contention to not be finalised by 1 July. Indeed, US Trade Representative Jamieson Greer essentially confirmed this expectation, saying: “We aren’t probably going to be able to resolve all issues by 1 July,” while addressing the Hudson Institute at an event about the future of trade policy on 7 April.
Anne McKinney, vice-president of the Americas at the US Chamber of Commerce, told Investment Monitor the chamber is “concerned about the likelihood of the three parties reaching a concrete agreement by July”. The view is echoed by Marroquin, who says having a finalised agreement by 1 July is a “low-likelihood scenario”.
Strategising in an age of uncertainty
The delay could give Mexico and Canada more opportunity to negotiate around long-held points of contention with the US. However, they are arguably approaching negotiations very differently.
Mexico has taken many steps (not without controversy) over the past year to address Washington’s concerns – namely around curbing illegal immigration and drug trafficking. The efforts have not gone unnoticed, and Greer has pointed out that collaboration with Mexico has been going more smoothly than with Canada. Yet both actors are also starting from different economic positions.
“Over 50% of what Canada exports to the US is either energy or commodities, so they can redirect those to other markets, whereas in Mexico, almost 90% of what we export goes to the US. It is part of the co-production system,” says Brenda Estefan, professor at the IPADE Business School and columnist at Reforma. “It is a lot of either American, European or Asian companies based in Mexico integrating part of their supply chain here and then sending to the US market […] I feel like Mexico has less leeway.”
Estefan also notes that, for many years, security and trade negotiations were separate from each other, and the fact that this is no longer the case makes balancing different trade and policy aims more difficult.
Marroquin echoes this view, noting that any progress in trade negotiations is now conditional on progress around security issues.
The biggest step Mexico has taken in this area over the past year was in February, when state security forces killed ‘El Mencho’, the leader of a massive criminal organisation responsible for trafficking cocaine, methamphetamine and fentanyl into the US.
The country also implemented tariffs of up to 50% on countries it did not have a trade agreement with, which mainly affected its trade with China. The US has wanted the country to clampdown on trans-shipments, claiming Mexico is a backdoor for cheap Chinese goods flowing into the US.
It is worth noting that despite the US’ efforts to shift manufacturing supply chains back to the US via tariffs and avoid backdoor schemes that allow cheap Chinese goods to flood in, the policy has not necessarily had the intended effect. A report by Bloomberg found that while China’s shipments to the US fell by more than $50bn (340.76bn yuan) in the past year, the drop was largely offset by a rise in imports from other manufacturing hubs such as Vietnam, India and Mexico.
For some, the tariffs look like an overcorrection, as it has not given Mexico any assurances that the agreement will be renewed or that national security tariffs, which have affected a third of its exports to the US, will be addressed. “I think the imposing of these tariffs was more reactive than a real strategy,” Estefan notes.
For Canada, the national security tariffs have targeted many of the country’s most important export sectors and domestic industries, such as steel and aluminium. These tariffs are technically in breach of the USMCA, which likely helps explain why Canada has delayed starting negotiations.
“They don’t want to sit down and talk about USMCA tariffs if the US is still putting [national security] tariffs,” Marroquin said.
Steve Verheul, Canada’s former chief trade negotiator, recently said that “time is on [Canada’s] side, because I think the pressures on the US are only going to increase over time”. The most influential factor may end up being the energy crisis spurred by the Iran war, which has already significantly driven up oil prices and set the stage for an energy shock that will outlast any ceasefire.
The rise in the price of these goods and commodities also makes the US administration’s goals for a manufacturing revival more costly.
According to preliminary US Department of Commerce data, steel imports declined by around 30% year-on-year from January 2025 to date, while prices have risen. Similar trends have affected aluminum, which is now at record high prices in the US as stocks diminish.
“The Canadian steel industry has experienced a significant drop in US exports, a curtailment of investments and job losses in steel mills across Canada,” Catherine Cobden, president and CEO of the Canadian Steel Producers Association, told Investment Monitor. She noted that the US and Canadian industries should work together as they are both subject to external factors like “the scourge of state-sponsored global overcapacity”. In the past ten years, increased Chinese production has flooded the global market with cheap steel.
She said the country’s steel industry “seeks a resolution to the US Section 232 steel tariffs as a condition of a renewal of CUSMA [Canada-United States-Mexico Agreement]”.
The reset
Over the next few months, as 1 July looms closer, the development of national security tariffs – which have expanded following the Supreme Court striking down the IEEPA tariffs – the conflict in Iran and any other unforeseen circumstances could shake up the negotiations. The possibility of the USMCA becoming less of a trilateral framework, leading to more bilateral dealings between the US and its neighbours, is also high.
The future of the “operating manual of a deeply integrated North American production system”, as Estefan describes it, is blurring into the background of a political agenda characterised by interconnected crises which show little signs of assuaging.
