Washington, D.C. – Travelers from Chattanooga are checking into resorts in Cancún. Canadian auto parts supply factories in the central United States, and vice versa. Patrons in Seattle raise glasses of Mexican tequila and mezcal during happy hour. It all contributes. The United States trades goods and services worth $1.9 trillion a year, equating to $5 billion daily, with its neighbors, Canada and Mexico. These nations have surpassed China as America’s top trading partners.
The stakes are high when adjusting the rules governing trade among the three countries. After a year of chaotic tariff policies under U.S. President Donald Trump, many businesses in the U.S., Canada, and Mexico would welcome a return to stability across North America. However, it seems unlikely they will achieve this.
The regional trade agreement, officially known as the United States-Mexico-Canada Agreement (USMCA), negotiated by Trump during his first term, reaches its review date on Wednesday. This process could span months or possibly longer, and the path ahead is fraught with challenges.
“There will be a lot of drama this summer,” warned Diego Marroquín Bitar, a researcher from the American Program at the Center for Strategic and International Studies, at a Cato Institute forum on USMCA.
North American Trade Faces Rocky Road
The U.S. has made demands that might compel Canada and Mexico to shift some automotive production to the U.S. This could boost job numbers at U.S. auto plants. However, it could also disrupt existing supply chains and increase the price of new cars in the U.S., which currently average nearly $50,000. This comes at a time when American consumers are already upset about the high cost of living.
Trump, in typical fashion, has escalated tensions by threatening to withdraw entirely from his own deal.
The Evolution from NAFTA to USMCA
In 2020, the USMCA replaced the 1994 North American Free Trade Agreement (NAFTA), which had eliminated most trade barriers among the three North American countries. Trump and other critics labeled NAFTA a job killer. It encouraged U.S. companies to move factories south of the border to benefit from low-wage Mexican labor and then send goods back to the U.S. tariff-free.
The USMCA ended up closely resembling NAFTA. However, it pushed factories to pay higher wages and ensured that more of what they produced originated in North America. This change aimed to prevent Chinese goods from slipping through regional borders without paying tariffs.
The USMCA includes a unique provision requiring the agreement to be renewed every six years. This deadline arrives on Wednesday, but according to Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness, nothing significant will happen immediately. Negotiators might agree to extend the USMCA as is for another 16 years, but that scenario is considered unlikely. Instead, efforts to improve the agreement are expected to continue. They have until 2036 to reach an agreement or the pact will expire.
Meanwhile, any USMCA country can withdraw from the pacto with six months’ notice to its partners: a red alert that Canada and Mexico, dependent on U.S. trade, worry Trump might trigger. In June, Trump stated he had no intention of renewing the trade pact with Canada and Mexico, claiming that “we don’t need anything they have.”
Oscar Ocampo suspects Trump does not genuinely want to exit the treaty. He suspects the uncertainty serves to maintain pressure on Mexico over security and immigration issues.
Canada’s Position in the USMCA Discussions
While the U.S. and Mexico have engaged in conversations about renewing the trade agreement, Canada has been left somewhat on the sidelines. Patrick Childress, a partner at the law firm Holland & Knight and former U.S. trade negotiator, cautioned that the danger for Canada lies in the U.S. and Mexican governments potentially reaching an accord on significant treaty changes. They could then present Canada with a take-it-or-leave-it situation.
Canadian Prime Minister Mark Carney announced that all three trade partners plan to meet virtually on Wednesday. He emphasized that he is not eager to sign off on any changes just yet.
Carney also mentioned in French that his priority is to update the USMCA.
Push for Production in the U.S.
The U.S. desires an updated trade agreement to better enforce the exclusion of Chinese goods entering unnoticed. The most contentious issue is the U.S. push to require more products to be manufactured in North America, especially in the United States.
The USMCA mandates that automotive products must be 75% North American-made, an increase from NAFTA’s 62.5%, to qualify for tariff-free treatment. The U.S. wants to raise even this 75% threshold, but it will not be straightforward. Automakers have long been fine-tuning their supply chains to meet the 75% benchmark, explained Childress. They would need time to adapt to a higher standard.
The U.S. is also seeking a completely new requirement: that 50% of vehicles be produced in the United States, Carney confirmed in early June. Currently, no USMCA country has a guaranteed production quota.
“It’s a red line for both Mexico and Canada, and it contradicts the spirit and letter of regional integration,” asserted Ocampo.
Marcos Carias, an economist with credit insurance company Coface, stated that currently, only 1 in 5 Mexican and Canadian cars imported to the U.S. would meet the 50% standard. Among vehicles that would likely face higher costs under this plan are the Ford Maverick compact truck, Chevrolet Equinox midsize SUV, and some Nissan sedans, all manufactured in Mexico. Carias’s rough estimates imply that prices could rise by 5% to 7% for the most affected models.
Companies Seek Stability
Numerous companies primarily seek relief from Trump’s fluctuating tariffs. “My interest in this USMCA renewal is solely consistency,” stated Shawn Miller, co-founder of PKGD Group, which imports agave-based drinks like tequila, mezcal and raicilla from family producers in Mexico. “If rules change, they change. But we really want to know what they will be and for them to remain stable for a while.”
Business is booming for PKGD. Sales in Holland, Michigan, have increased by 62% year-to-date after skyrocketing 100% in 2025 and 300% in 2024. However, last year was chaotic.
In February, Trump imposed a 25% import tax on Mexican and Canadian goods, only to exempt products eligible for USMCA preferential treatment a month later. The treaty allows Mexican beverages to enter the U.S. duty-free.
Amidst the turmoil, PKGD’s three truck shipments of imported Mexican beverages crossed the U.S. border and incurred a 25% tariff, costing $105,000. Unsure of future tariffs Trump might introduce, PKGD consulted with its Mexican producers to formulate a response. “What can we absorb? What can they absorb?” pondered Miller.
Miller noted that he and his Mexican suppliers “are not large multinational corporations with dedicated trade departments, teams of lawyers, or lobbyists focused on trade policy.”
AP journalists Maria Verza in Mexico City and Rob Gilles in Toronto contributed to this report.
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