Not Renewing USMCA Isn't the Deal’s Death Knell—But It Isn't Costless Either

Alfredo Carrillo Obregon

On June 10, President Trump cast doubt on the future of the United States-Mexico-Canada Agreement (USMCA), stating that he is “not looking to renew” the deal ahead of a “soft” July 1st deadline for the three countries to agree to extend this treaty. Trump offered an interesting explanation for his decision, claiming that “we don’t need anything that [Canada and Mexico] have.” Whether such rhetoric is genuine or not—and there is certainly reason to believe it’s the latter—it is erroneous. The United States does, in fact, need Canada and Mexico, and many Americans would be harmed if negotiations on a USMCA extension drag on for a prolonged period or, worse, if the agreement ceases to exist.

For starters, Mexico and Canada have become the largest US trading partners, replacing China (Figure 1). Mexico, in particular, has become the largest source of US imports after a “nearshoring boom” aided by the USMCA (Figure 2). In particular, the two countries account for large shares of total US imports of important products, including fuel, transportation equipment, and foodstuffs (Figures 3 and 4). Additionally, Canada and Mexico are major destinations for US exports, including from states that Trump carried in 2024. Undermining the USMCA would therefore impose costs on many Americans, especially if it results in “USMCA-compliant” Canadian and Mexican imports being subjected to the administration’s tariff wall.

The USMCA’s importance extends beyond what these topline figures may suggest. As a result of the regional integration that began with the North American Free Trade Agreement—the USMCA’s predecessor—the three countries are tightly integrated partners in production. Supply chains across various sectors, including automotive, energy, and agriculture, cross one or multiple North American borders—often several times—before final production. US manufacturers, in particular, benefit from high levels of intra-industry trade with Canada and Mexico, as they can both source industrial inputs for domestic production and embed high levels of American value-add in products made elsewhere in the region. The National Association of Manufacturers recently estimated that the USMCA supports 2 million jobs in this sector alone.

There are indications that President Trump understands much of this—at least tacitly—having exempted “USMCA-compliant” products from sweeping tariffs on Canadian and Mexican goods, first imposed under the International Emergency Economic Powers Act (IEEPA) and later replicated through Section 122 of the Trade Act of 1974. Notably, this exemption followed an adverse reaction in financial markets and lobbying by both American auto firms and legislators from agricultural states who recognize the adverse impact of barriers to trade within North America. 

That said, Trump’s June 10 announcement isn’t entirely surprising. Trump said he would seek to renegotiate the USMCA during the 2024 campaign trail, and US Trade Representative Jamieson Greer recently told Congress the administration would not rubber-stamp an extension of the agreement. Threats are also a staple of Trump’s approach to trade. Indeed, Canadian and Mexican officials had also anticipated that negotiations would go beyond the July 1 deadline. Taken together with his statement about the US not needing “anything” from Canada and Mexico, Trump’s announcement is best interpreted as a negotiating tactic.

Additionally, the rhetoric is also perhaps less dramatic than it seems. Even if the US opts not to extend the USMCA by July 1—the date that the trilateral Free Trade Commission (the Commission) must meet to conduct a “joint review” of the agreement—the pact would remain in force for ten more years, per the USMCA’s Article 34.7. As CSIS’s Diego Marroquín Bitar and William Alan Reinsch have further explained, failure to extend the agreement would trigger a series of annual joint reviews through 2036, until the parties either agree to extend the agreement or let it expire.

But this approach to the USMCA review is not risk-free. If talks drag on or reach an impasse, the Trump administration might escalate its rhetoric about replacing the USMCA with bilateral agreements or withdrawing from it entirely. Though neither outcome seems particularly likely at this point, repeated mentions by the president and members of his administration only compound uncertainty about the agreement’s future. With the USMCA a pillar of co-production among the three North American countries and trade policy uncertainty linked to lower business investment, this heightened uncertainty stands to impact American companies with operations and suppliers across the region. 

Trump’s refusal to extend the agreement is, therefore, not the agreement’s death knell, but it is also far from harmless. The US economy may not be as dependent on trade as the Canadian and Mexican economies, but major US industries and companies certainly depend on supply chains that have developed across the three countries over a thirty-year period, a development anchored by the prospect of uninterrupted, rules-based free trade in North America. It is of paramount importance that the Trump administration not undermine that certainty and work with Canada and Mexico to expeditiously conclude the negotiations on the USMCA’s renewal free of new barriers to regional trade and investment.

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Methodological Note

Figures 3 and 4 show imports from Canada and Mexico, respectively, as a share of total US imports in 2025. The product categories depicted are aggregates of HS‑2 tariff subheadings, based on Table A1 in Contreras, Lovely, and Yan (2024). One adjustment is made to the categories in Table A1 for added specificity: HS sub-headings 90 to 94 are disaggregated into: Scientific and artistic instruments and apparatus (aggregating HS‑2 subheadings 90 to 92); Arms and ammunition (HS‑2 subheading 93, not depicted in Figures 3 and 4); and Furniture (HS‑2 subheading 94). For a comparison of import shares using PIIE’s original categories and the author’s methodology, see this spreadsheet.

Source: https://www.cato.org/blog/not-renewing-usmca-isnt-deals-death-knell-it-isnt-costless-either