US-Mexico-Canada Agreement Under Review

Scott Lincicome and Chad Smitson

This Thursday (6/25), Cato will host a panel discussion of the six-year anniversary and upcoming joint review of the United States-Mexico-Canada Agreement (USMCA), featuring House Ways & Means Trade Subcommittee Chairman Adrian Smith (R‑NE) and a panel of subject-matter experts. The event is being held in anticipation of the July 1 deadline to renew the deal for another 16 years. Most expect the United States to decline to agree to that extension, so the deal will be subject to annual reviews until either it expires in 2036 or the parties agree to extend it.

While President Trump (previous champion of the agreement) has said he’d “rather not have” the deal, its size and depth all but ensure it will survive in some form—something even “Tariff Man” Trump understands. In advance of Thursday’s event, here are a few data points to make our case:

First, there’s simply the sheer size and depth of the USMCA, which supported almost $2 trillion in trilateral trade in 2024 alone. Compared to similar trade blocs, such as the European Union (EU) and the Regional Comprehensive Economic Partnership (RCEP; made up of the Association of Southeast Asian Nations plus China, Australia, Japan, South Korea, and New Zealand), USMCA is smaller in terms of total intra-bloc trade. On a per-country basis (USMCA: 3 members, EU: 27, RCEP: 15), however, trade volumes are much higher—a strong indication of the North American supply chain’s uniquely deep integration, seen in Figure 1.

Further evidence of this integration is found in recent data on trade between US multinationals and their overseas affiliates (so-called “intrafirm trade”). According to an NBER working paper, 73.3 percent of North American affiliates trade with their US parent company, compared to just 56.6 percent globally. Thus, the authors conclude, “raising trade barriers can be extremely detrimental for US multinationals, particularly when they are applied on imports from Canada and Mexico.”

Despite his rhetoric, Trump seems to understand the economic (and thus political) damage that unwinding USMCA can cause. After Trump imposed new tariffs under the International Emergency Economic Powers Act (IEEPA), he almost immediately exempted goods that qualify under USMCA—exemptions that persist today and now cover around 87 percent of all Canadian/​Mexican imports into the United States, shown in Figure 2. 

Thus, somewhat absurdly, the agreement that President Trump helped to create and is threatening to kill has become the primary way for North American supply chains to survive his tariff agenda.

The USMCA certainly has some faults, and perhaps forthcoming reviews will address some of them. Overall, however, it’s been a net benefit for American manufacturers and the US economy, and—contra Trump’s words—it’ll likely be here after he’s gone. 

For a discussion of these issues (and plenty more), you can join us at Cato’s event this Thursday (6/25) or watch online at the same link.