U.S. President Donald Trump on the 1st, local time, rejected a long-term extension of the United States-Mexico-Canada Agreement (USMCA). It is the deal he personally directed negotiations for during his first term and has boasted as the "best trade agreement ever."
Refusing the extension does not make the agreement disappear right away. The duty-free benefits and rules of origin among the three countries remain in place through 2036. Instead, starting next year, the three countries must undergo a joint review every year until they agree to extend to 2036. If the three countries fail to agree again in 2036, the agreement ends as is. For 32 years, corporations have trusted the United States, Canada and Mexico as a single production zone and built factories, but going forward it means they will have to get that premise confirmed by the United States every year.
Representatives of the United States, Canada and Mexico held the first joint review meeting since the agreement took effect by video on the 1st. The agreement set its basic validity through 2036, and was designed to be extended another 16 years if all three countries agreed in the sixth year after it took effect, which is this year. The United States refused to agree that day, scuttling the long-term extension. Jamieson Greer, head of the Office of the United States Trade Representative (USTR), said, "The United States did not agree to renew the USMCA in its current form, and as a result the agreement was not renewed," but added, "The agreement remains in force until the issues are resolved or it is terminated."
According to Reuters, last year the U.S. goods trade deficit was about $197 billion with Mexico (about 305 trillion won) and about $48.3 billion with Canada (about 75 trillion won). Greer said the United States would continue to discuss the agreement's flaws and the trade deficit with the two countries. The Canadian government emphasized that "the agreement is fully valid through 2036 and the three countries can agree to a 16-year extension at any time." Fox Business, citing a Trump administration government official, reported that the United States plans to pursue separate agreements of up to 10 years each with Canada and Mexico.
The USMCA is the agreement that the Trump first-term administration renegotiated from the North American Free Trade Agreement (NAFTA), which launched in 1994. Shortly after taking office, President Trump pushed for renegotiation, saying NAFTA stole U.S. jobs. He signed a new agreement in Dec. 2019 that strengthened auto rules of origin, Mexican labor rights and digital trade provisions, and the USMCA took effect in July 2020. Foreign media usually call it "NAFTA 2.0." In this system, the United States provides capital and technology, Canada energy and resources, and Mexico production bases. Under the agreement, the three countries trade about $1.6 trillion (about 2,480 trillion won) annually. By the U.S. International Trade Commission (ITC) tally, in 2024 Canada and Mexico were the No. 1 and No. 2 export markets for U.S.-made goods. Since the agreement, the three countries have built supply chains in which a single part crosses the U.S., Canadian and Mexican borders multiple times before being assembled into a finished car.
However, as a tariff war erupted last year and relations among the three countries began to fray, the United States has been dealing with Canada and Mexico separately rather than together under the North American economic bloc. President Trump imposed a 25% tariff on both countries last year and has demanded renegotiations. This year, the United States held two rounds of bilateral talks with Mexico on auto and industrial goods rules of origin and blocking transshipments of Chinese-made parts. On the 20th, it will hold a third round of talks with Mexico alone. With Canada, it is separately raising the issues of opening the dairy market and tariffs on steel, aluminum and lumber. Instead of discussing the same rules in a single negotiating room as before, the framework has shifted to Canada and Mexico negotiating separately with the United States in the middle. In that case, Canada and Mexico will find it harder to form a joint front. Relatively, the United States can use concessions extracted from one country in negotiations with the other, Fox Business reported.
The sector where the United States is pressing the two countries hardest now is autos. Under the current USMCA, vehicles receive duty-free benefits if at least 75% of the value of their parts is produced in North America. The United States is demanding an additional requirement that more than 50% of parts be U.S.-made. Reuters reported that they are even discussing raising the threshold for North American content from 75% to around 82%. If this demand is enforced, the principle of favoring North American-made regardless of whether a car is made in the United States, Canada or Mexico would shift to favoring cars made more in the United States. Nissan's chief executive officer (CEO) said, "The supply chain to produce all parts within the United States is not currently in place," adding, "Expanding the U.S.-made requirement could lead to higher vehicle prices." The U.S. auto industry is also demanding that "to compete with Asian and European companies, the three-country duty-free system must be maintained."
For manufacturing sectors like autos, batteries and steel, where it takes decades to recoup investment, the math gets complicated if the agreement is not extended. If the agreement's survival becomes a subject of negotiation every year, corporations are likely to delay new investments in Mexico and Canada and move to increase production in the United States. Keeping the agreement alive while maintaining uncertainty functions as a pressure tool to draw factories to the United States. The Center for Strategic and International Studies (CSIS) predicted that the USMCA is most likely to enter a "painful extension" phase predicated on long negotiations and substantial concessions. The think tank assessed, "If reviews are repeated annually, uncertainty that suppresses long-term investment in North America will persist even if the agreement remains in place."