Among global trade pacts, has President Trump turned the United States-Mexico-Canada Agreement into a member of the walking dead?
In July, as USMCA reached the deadline for its mandatory six-year review by the three member countries, the Trump Administration announced that it would not agree to an additional 16-year term. Instead, as dictated by the original agreement, USMCA will now be subject to annual joint reviews for the remainder of its life, until expiration on July 1, 2036.
The agreement remains in full force until that date. In addition, an “at-any-time” provision leaves the door open to an agreement to extend USMCA for an additional 16 years at any point before its expiration.
Notwithstanding that supposed safety net, the Trump Administration’s abandonment of the idea of a tripartite North American trade agreement leaves many companies doing business across borders in a condition of high uncertainty. They’re being forced to adjust to Trump’s pivot to viewing USMCA “as more of a North American economic framework, rather than conventional trade agreement,” says Clinton Carter, partner in geopolitical advisory with global consultancy Control Risks.
Carter says the U.S. is now using the agreement-review process to pursue multiple geopolitical objectives such as immigration control, national security, supply chain resilience and reining in the global economic aspirations of China. “That makes evaluation [of USMCA] through a much more standard lens of technical trade terms a lot less useful.”
That said, trade objectives remain important, Carter believes. “We’re not of the mindset that the agreement is going to die or be abandoned, or [subjected to] perpetual annual reviews.” What’s in the cards now, he says, is a “protracted period of negotiations that could take well over a year.”
A resulting new agreement could prove durable, Carter says, although it’s likely to look “considerably different.” One probable result of Trump’s torpedoing of USMCA in its current form is an ongoing series of bilateral trade agreements between the three signatories. Indeed, that shift was already evident in the months running up to the July 1 renewal date, with the U.S. conducting a series of one-on-one talks with Mexico while delaying similar ones with Canada. (Far from seeking stronger trade ties with Canada, Trump has recently stoked the fires of disagreement between the two countries, announcing a 50% tariff on an array of Canadian imports, on top of a previously imposed 10% duty.)
Carter views such actions as emblematic of Trump’s negotiating strategy: announce punitive measures in the runup to talks, then delay, lessen or back away from that action as a “concession” to reaching a deal.
As for Mexico, a third round of bilateral trade talks with the U.S., which took place in May, June and July of this year, addressed a broad range of topics, including steel, aluminum and derivative products (already subject to U.S. duties ranging from 25% to 50% on all importers in that category); the cross-border automotive industry; labor unions; electronic payments, and general economic security. The main sticking points, says Carter, consist of rules on local content and country-of-origin percentages for goods subject to preferred duty treatment under the agreement.
Another of Trump’s priorities is curbing China’s practice of transshipping U.S.-bound products of Asian origin through Mexico, to qualify for duty-free treatment under USMCA.
Businesses, meanwhile, are stuck in the middle of these ongoing disputes between Trump and his North American neighbors. The automotive industry in particular “has got quite a lot to lose from substantial revisions, given how much they’re invested [in production in Mexico] over time,” Carter says. A card that some automakers are playing consists of “splashy” announcements about moving more production to the U.S. Toyota, for one, recently revealed plans for a $3.6 billion-dollar expansion of its plant in San Antonio, Texas, including the addition of 2,000 jobs there by 2030.
North American manufacturers looking to hedge against chronic trade uncertainty need to acquire a better grasp of the geopolitical concerns driving Trump’s trade strategy, as well as to seek external assistance in understanding the issues that are complicating or delaying the agreement, Carter says. They also need to master the documentation that validates the products that qualify for duty exemptions under USMCA. “All that boring paperwork is becoming much more important,” he says. “Preferential access might become harder to defend, and become challenged.”
Finally, he says, manufacturers should engage in contingency planning that might lead to the engagement of secondary regional suppliers, rather than relying solely on Mexico for manufactured product.
What’s the worst that could happen? The prospect of no USMCA or equivalent North American trade agreement is “almost hard to fathom,” Carter says. “That’s the stick that’s being held out in negotiations, but the general acknowledgment is that the economic consequences would be pretty dire.”
He prefers to take a more hopeful view. “There are ongoing efforts right now to push those negotiations forward. We’re not in a position where the U.S. has just walked away — we’ve just gone into a different phase of uncertainty.”
With all of those factors in mind, should companies be making major capital-allocation decisions about manufacturing in Mexico right now? “Probably not,” says Carter.
Next: The impact of USMCA uncertainty on the North American automotive industry.