- The Decline of the USMCA Renewal: Tariffs and Trade Tensions - 7 August, 2026
I am currently completing a traineeship in social media at ALDE Party in Brussels, where I research political developments and produce strategic content for social media platforms. Previously, I worked at the United Nations Regional Information Centre for Western Europe, within the social media and web team, where I supported the production of content for social media, conducted policy-related research and monitored EU-UN relations.
The 2026 review of the United States-Mexico-Canada Agreement (USMCA) resulted in a U.S. decline to renew and a major departure from North American trade policy. Points of contention quoted in the U.S. decline of negotiation included strict rules of origin, rising trade deficits, and trade policy on non-regional goods. This article examines the reasons behind…
Introduction
The USMCA came into effect on July 1, 2020, to replace the North American Free Trade Agreement (NAFTA). Spanning the majority of North America between the three countries, these agreements represented one of the world’s largest free-trade zones and a globally competitive regional trade bloc. The USMCA built upon NAFTA by expanding labor and environmental standards, stricter rules of origin, and digital trade protections. Since its implementation, the USMCA has boosted intra-regional trade between the U.S., Canada, and Mexico by 37 percent. Additionally, U.S. exports to Canada and Mexico have grown by 56 percent, and intra-regional trade has reached $1.5 trillion, exceeding respective trade flows with China. The USMCA was viewed as largely successful in integrating North America into a globally competitive economic bloc.
However, on July 1, 2026, the U.S. declined the renewal of the United States-Mexico-Canada Agreement (USMCA). This occurred under the USMCA “sunset clause,” which requires the three partners to meet every six years to re-evaluate the trade agreement. If any country refuses renewal, the USMCA enters a 16‑year countdown toward expiration. As of July 1, 2026, the U.S. has officially declined the renewal, and the countdown has begun. The USMCA will officially remain in force until July 1, 2036.
This leads to the question: What were the political and economic tensions that resulted in the U.S. decline of the USMCA renewal process? And what will trade relations look like moving forward?
The U.S. Strategy: Tariffs, Manufacturing, and Economic Leverage
During the USMCA negotiations, the U.S. addressed three main concerns: rules of origin, access to markets, and environmental/labor standards. For example, in agriculture, the US advocated for reduced restrictions to gain access to the Canadian dairy market and approval for American genetically modified crops. Additionally, the U.S. had aimed to remove non-tariff barriers in agricultural trade practices that the U.S. views as overly strict, which include sanitary and phytosanitary (SPS) restrictions. Secondly, the U.S. advocated for stricter rules of origin to ensure more products are manufactured within North America and counter cheaper imports from the global supply chain. This is part of the U.S.’s wider economic security concern to reduce dependence on China and elevate American competitiveness on the global market. Third, the U.S. aimed to standardize labor and environmental standards to prevent the relocation of companies to Mexico, which is often due to weaker regulations and lower wages.
The United States has moved toward a highly protectionist trade policy in an effort to reduce trade deficits. In 2025, the Trump administration signed into effect “Liberation Day Tariffs,” which imposed a 10% tariff on every country (with a few exceptions) in an attempt to address trade practices that contribute to the US goods trade deficit. Imports from Canada and Mexico that met USMCA rules-of-origin standards were exempt with a fallback of 12 percent for non-compliant goods, however, major adjustments to supply chains were required to reach compliance. The “Buy American” emphasis on U.S. trade policy led to the Trump administration’s protectionist approach on USMCA negotiations and a push towards bilateralism.
Under the International Emergency Economic Powers Act (IEEPA) and Section 232, the U.S. has enforced tariffs on Mexican and Canadian goods, actively violating the USMCA. While the U.S. Supreme Court overturned the 2025 IEEPA-imposed tariffs by Donald Trump in February of 2026, deeming them unlawful, importers are still actively litigating for billions in refunds. Due to unpredictable and, at times, unlawful U.S. trade policy, Canada and Mexico distrust the U.S. as a trade partner. This has added to the underlying trade tensions, with the U.S. having established a coercive pattern of threatening tariffs on Mexican and Canadian products for leverage in negotiations.
The “Buy American” approach has resulted in several negative effects on U.S. workers and consumers. A major impact of trade tariffs on Mexico and Canada on U.S. households has been higher prices. These tariffs function similarly to a tax on U.S. consumers, raising the cost on everything from appliances to vehicles. Despite the U.S. protectionist approach being marketed to protect domestic industries, it has resulted in a declining purchasing power, particularly for middle- to low-income American citizens. Ending the USMCA will effectively impact American consumers through raising prices on vehicles, groceries, and everyday goods.
Current political tensions in North America complicated the USMCA negotiations. With the U.S. threatening tariffs and reopening provisions to strengthen the bargaining position, the result of this approach has strained relationships with its neighboring trading partners and shown a degree of U.S. unreliability. For Canada and Mexico, the U.S. approach has demonstrated an unpredictable trading partner. U.S. businesses have slowed investment in a cautious approach as trade terms and U.S. unpredictability have impeded long-term planning.
Why did the U.S. decline to renew the trade agreement? The White House primarily cited the rising trade deficit, alongside the above negotiation concerns, compliance disputes over rules of origin, and ongoing sector disputes. With the aim of balancing trade, the USMCA, that the U.S. claims the agreement failed to balance trade in the region; the U.S. goods deficit has risen exponentially to $197 billion with Mexico and $48.3 billion with Canada under the USMCA. The U.S. also aimed to enforce stricter rules of origin and compliance that its partners were unlikely to agree to in negotiations.
Canada’s Vulnerability and Push for Stability
As Canada sends the majority of its exports to the United States, Canadian businesses have depended heavily on the trading environment provided by the USMCA. The U.S. and Canada trading relationship is deeply asymmetrical; approximately 76 percent of Canada’s exports are destined for the U.S., while Canada received only 17 percent of U.S. exports in 2024.
The U.S.-Canada trade relations have significantly deteriorated with the implementation of Section 338 levies, signed on July 20, 2026. These place tariffs up to 50 percent on Canadian goods over specific disputes over alcohol, vehicles, and cheese. Canada claims these tariffs violate the current USMCA (which remains in effect under the sunset clause) and placed retaliatory tariffs of 25% on specific U.S. goods, including aluminum, provincial alcohol bans, steel, and automobiles. Canadians have responded by increasingly consuming Canadian-produced goods to avoid the extra cost placed on U.S. consumables. While Mexico engaged in diplomatic talks and avoided retaliatory tariffs, the U.S.-Canada trade friction has escalated by Canada being left out of active trilateral negotiating groups.
While Prime Minister Mark Carney pursues new trade agreements to diversify Canada’s markets, including with the EU and India, the US remains Canada’s primary economic partner. The Canadian Chamber of Commerce has noted that, despite Canada’s efforts to maintain cooperation, the US administration’s tariff actions have created a highly uncertain environment for companies across all three USMCA countries.
Mexico Between U.S. Pressure and Economic Opportunity
Mexico, meanwhile, faced the challenge of preserving access to the U.S. market while responding to the opportunity of Chinese supply chain security and investment. The three main objectives for Mexico in the negotiations were steel/automotive relief, investment stability, and protecting manufacturing. With 79.7 percent of automotive exports from Mexico destined for the U.S. and 23.3 percent of all U.S. agricultural imports coming from Mexico, ensuring uninterrupted, tariff-free access was a high priority. The aim of securing a 16-year extension (until 2042) was to solidify Mexico’s position in the relocation of supply chains to nearshoring. Within this context, Mexico’s President Sheinbaum aimed to increase local production while reducing dependency on Asian imports such as semiconductors. Additionally, specific U.S.-Mexico trade disputes, such as those caused by a 25% U.S. steel tariff on the automotive industry (for steel sourced from China), Mexico is expected to continue to advocate for tariff alleviation moving forward.
Additionally, Mexico has received pressure from the U.S. in regards to tightening its rules of origin and reliance on Chinese components in manufacturing. This is part of the U.S. aim to thwart China’s investment in Mexico, which would ensure supply chain alignment. The USMCA rules of origin state that for duty-free access, goods must be primarily produced in North America, particularly automobiles (which have a requirement for 75 percent produced in the region). This includes 70 percent North American labor and steel/aluminum, as well as a 10 percent de minimis threshold. China’s investment in Mexico has primarily been directed towards the automobile industry and steel inputs, which has faced scrutiny in US rule of origin compliance. The U.S. has therefore expressed concern over USMCA violations with Mexico being utilized as a “backdoor” for Chinese goods.
Furthermore, a major strain in the U.S.-Mexico relationship is the illicit drug trade. Despite the USMCA primarily addressing intellectual property and legal trade, this issue was raised in negotiations. The primary source of fentanyl in the U.S. is Mexico; approximately 98.9 percent of all fentanyl seizures by U.S. Customs and Border Protection (CBP) are traced back to Mexico. In ongoing bilateral talks, the U.S. has demanded Mexico take stronger action against cartel activity within the context of U.S.-Mexico trade dialogue.
While Canada actively diversifies trade to reduce reliance on the U.S., Mexico has attempted “quiet diplomacy” despite significant pressure on labor and energy policy.
Moving Forward
By opting out of the renewal, the U.S. has pursued bilateral talks. This approach departs from the trilateral framework, fragmenting the geopolitical alignment and regional free trade bloc. For Mexico, the Office of the United States Trade Representative has ongoing trade dialogue primarily covering rule of origin and automotive content. In the U.S. and Canada, there are active disputes over retaliatory tariffs, digital service taxes, and agricultural market access that have affected negotiations. The U.S. has continued to reach agreements with both countries to align regarding Chinese investment
Conclusion
The 2026 USMCA decline demonstrated a shift toward a fragmented regional bloc and increased protectionist trade policy between the partners. As the USMCA was indicative of the region’s alignment in an integrated economic bloc for global competitiveness, there is a potential long-term decline in North American competitiveness if bilateral tensions are not managed. The renewal process itself demonstrated the economic and political tensions, with the U.S. utilizing tariff coercion, a concern over China, and shifting political alliances. Bilateral agreements will continue to address these concerns.
Non-renewal does not equate to immediate termination. The USMCA remains fully in force through the annual reviews until 2036. Ongoing bilateral talks between officials from Canada, Mexico, and the U.S. continue in effort to amend terms or fully depart to forge new agreements.
References
United States Trade Representative. (n.d.). United States-Mexico-Canada Agreement. U.S. Trade Representative. https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement
Marroquín Bitar, D., Hernandez-Roy, C., & Wayne, E. A. (2025, August 18). USMCA review 2026: Pathways, risks, and strategic considerations for North America’s economic future. Center for Strategic and International Studies. https://www.csis.org/analysis/usmca-review-2026
United States Trade Representative. (2020, July 1). Chapter 34: Final provisions [PDF]. In United States-Mexico-Canada Agreement. U.S. Trade Representative. https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/34_Final_Provisions.pdf
Bond, D. E., Spak, G., de Rosenzweig, F., Véjar, C., Luna, K., & Saccomanno, I. (2024, November 14). North America prepares for 2026 USMCA review and potential renegotiation. White & Case LLP. https://www.whitecase.com/insight-alert/north-america-prepares-2026-usmca-review-and-potential-renegotiation
The White House. (2025, February 1). Fact sheet: President Donald J. Trump imposes tariffs on imports from Canada, Mexico and China. https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/
Devlin, K., & Ma, Y. (2025, March 4). How does fentanyl get into the US? BBC News. https://www.bbc.com/news/articles/cvg93nn1e6go
Webster, J., Xu, J., & Bruno, M. (2025, February 3). Trump tariffs – Further updates from Canada. Global Supply Chain Compliance. Baker McKenzie. https://supplychaincompliance.bakermckenzie.com/2025/02/03/trump-tariffs-further-updates-from-canada/
Prime Minister of Canada. (2026, February 23). Prime Minister Carney to diversify Canada’s trade, attract new investment, and secure new economic partnerships with visits to India, Australia, and Japan. https://www.pm.gc.ca/en/news/news-releases/2026/02/23/prime-minister-carney-diversify-canadas-trade-attract-new-investment
Canadian Chamber of Commerce. (2026, January 20). Policy Matters: It’s the year of the USMCA review. What does this mean for Canada? https://chamber.ca/policy-matters-its-the-year-of-the-usmca-review-what-does-this-mean-for-canada/
