The United States decided on Wednesday not to renew the US-Mexico-Canada Agreement (USMCA) in its current form, US Trade Representative Jamieson Greer said in a statement.
“The United States will continue to engage with Mexico and Canada to address the shortcomings of the agreement and our trade deficit with these countries,” Greer said.
Although it was not extended by Wednesday’s deadline, the deal will remain in place for the next 10 years and will now be reviewed annually, opening the possibility for lengthy and complex negotiations on everything from tariffs to trade rules governing specific sectors.
The on-again, off-again negotiations are likely to create more uncertainty for U.S. automakers and farmers who rely on stable and interconnected supply chains based on the deal.
Trump is upset with his own deal
The decision by US President Donald Trump’s administration was widely expected, as Trump seeks to realign the playing field with America’s top two trading partners.
During his first term, Trump negotiated and heavily praised the USMCA as a better alternative to the “disastrous” North American Free Trade Agreement (NAFTA), which he said had led to the loss of American jobs along with other problems.
When signing the USMCA into law in January 2020, Trump called it “the largest, fairest, most balanced and modern trade agreement ever made” and promised that it would provide “jobs, wealth, and growth.”
Exactly six years later, Trump said in June that he “does not want to renew” the deal and even threatened to pull out of it altogether, which was considered an unexpected outcome.
What is USMCA?
Based largely on the NAFTA framework, the USMCA restructured supply chains by imposing strict rules of origin, for example, requiring 75% of automotive components to be made within North America to qualify for zero tariffs. The deal provided American farmers with better access to markets in Mexico and Canada, along with provisions to protect intellectual property and trade in the digital sector.
This regulatory stability increased trade within North America, and pushed Mexico and Canada ahead of China as the US’s top trading partners. Integrated supply chains, and increased trade in goods and services within North America to reach nearly $2 trillion in 2024.
However, now in his second term, Trump has become less optimistic about the deal, calling it “irrelevant” and criticizing loopholes that allegedly allow countries like China to benefit from zero tariffs.
The US has said it wants to increase more auto production and resolve disputes such as Canada’s protection of its dairy industry. Critics say that this may increase the price of cars.
Trump has also singled out Canada and Mexico for heavy tariffs, even though they have made significant exemptions for goods covered by the USMCA.
what happens now?
Greer said the three countries plan to hold a third round of talks in Mexico City on July 20. A senior Trump administration official told Reuters news agency that talks in Mexico City were likely to focus on strengthening North American rules of origin for cars and other industrial goods.
“I don’t see any gap that is so big that we can’t solve it,” Mexican Economy Secretary Marcelo Ebrard said at a news conference.
“We are in no rush, but we also don’t want any uncertainty, which is why we need to try to reach an agreement on many of the issues we have been working on for months – issues that can change from one day to the next,” said Ebrard, who participated in a virtual meeting on Wednesday with Greer and Dominic LeBlanc, the Canadian minister responsible for U.S.-Canada trade.
Canadian Prime Minister Mark Carney said before the virtual meeting on Wednesday that he did not expect to reach any kind of agreement. “I’m not looking for my pen,” he said, later adding that his priority was to update the deal.
Edited by: Srinivas Majumdaru
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