Outlook Explains | Trump Buries His Own North American Trade Deal

The United States declined to renew the United States-Mexico-Canada Agreement (USMCA) during its first mandatory six-year joint review on Wednesday, marking a dramatic reversal for the trade deal that President Donald Trump once described as "the largest, fairest, and most balanced trade agreement ever negotiated."

The review, conducted virtually by the USMCA Free Trade Commission comprising representatives from the United States, Canada and Mexico, was designed to determine whether all three countries would agree to extend the agreement for another 16 years. Instead, Washington withheld its support.

In a statement issued after the meeting, US Trade Representative (USTR) Ambassador Jamieson Greer said the United States "will continue to engage with Mexico and Canada to address the Agreement's shortcomings and our trade deficits with these countries."

The decision does not terminate the agreement immediately. Under USMCA's sunset mechanism, the pact remains in force until 2036. However, the failure to secure unanimous support during the six-year review shifts the agreement into an annual review process, meaning the three governments must revisit its future every year unless they agree on an extension.

From NAFTA to USMCA

USMCA entered into force on 1 July 2020, replacing the North American Free Trade Agreement (NAFTA), which had governed trade among the United States, Canada and Mexico since 1994.

Negotiated during Trump's first presidency, the agreement was presented as a modernised version of NAFTA, incorporating new provisions on digital trade, labour standards, environmental protections, intellectual property rights and support for small and medium-sized enterprises (SMEs).

According to USTR data, total US goods and services trade with Canada and Mexico reached $1.8 trillion in 2022. Together, the two countries accounted for 33% of all US goods exports, underlining the economic importance of North America's integrated market.

USMCA also tightened rules governing several key industries.

For the automotive sector, the agreement increased regional content requirements, mandating that 75% of a vehicle's components originate in North America. It also required 40-45% of vehicle content to be produced by workers earning at least $16 per hour, a provision aimed at encouraging higher-value manufacturing within the region.

Agriculture formed another major pillar of the negotiations. Canada agreed to expand market access for US dairy products, including milk, cream, butter, cheese and skim milk powder. The agreement also guaranteed non-discriminatory grading for US wheat entering Canada while expanding access for American poultry and eggs.

The digital trade chapter was equally significant. USTR described it as containing "the strongest disciplines on digital trade of any international agreement", prohibiting customs duties on digital products while protecting cross-border data flows. The agreement also strengthened intellectual property protections, extending copyright terms to the life of the author plus 70 years.

Why Washington Walked Away

The Trump administration argues that the agreement has failed to address persistent trade imbalances and protect American manufacturing.

According to USTR figures, the US goods trade deficit with Canada and Mexico reached $210.6 billion in 2022, a 37.5% increase from the previous year. The administration has repeatedly pointed to those deficits as evidence that the agreement requires substantial revision rather than automatic renewal.

Speaking in June, Trump said, "We don't need anything that Canada has, we don't need anything that Mexico has, but they need everything that we have."

The administration's position had been signalled months before the review deadline.

In opening remarks to Congressional committees in December 2025, Greer argued that "the shortcomings are such that a rubberstamp of the Agreement is not in the national interest." The concerns outlined by the administration included continued offshoring of manufacturing to lower-cost facilities in Mexico, the loss of American industrial jobs and what it considers insufficient enforcement of labour and trade commitments under USMCA.

Rather than endorsing a 16-year extension, Washington has opted to reopen discussions on areas it believes require reform.

What Happens Now?                

Despite Washington's decision, USMCA remains fully operational.

The agreement's sunset clause provides that if the parties fail to agree during a joint review, they must continue meeting every year to consider extending the agreement. Only if consensus is not reached by 2036 would USMCA expire automatically.

Separately, any member country retains the right to withdraw from the agreement by providing six months' written notice.

Negotiations have already begun with Mexico.

According to the USTR statement issued following the review, officials from the United States and Mexico will hold a third round of negotiations during the week of 20 July in Mexico City as discussions continue over possible revisions.

Canada's position differs.

Ottawa formally requested a 16-year extension on 1 June 2026 and has maintained that the existing agreement should remain intact. Formal renegotiation talks between Washington and Ottawa have yet to begin, reflecting broader tensions in the bilateral relationship, including US tariffs and Trump's repeated remarks suggesting Canada could become America's 51st state.

The differing positions leave the agreement entering an extended period of negotiation rather than immediate uncertainty over its legal status.

What's at Stake?

Several sectors now face closer scrutiny as negotiations move forward.

The automotive industry remains one of the most integrated sectors under USMCA. Vehicle production relies on supply chains that cross the three countries multiple times before final assembly, making tariff certainty critical for manufacturers. Any significant changes to the agreement could affect investment decisions across North America's automotive industry.

Manufacturing more broadly also carries significant economic weight. According to USTR data, US foreign direct investment in Canada and Mexico reached $569 billion in 2022, with manufacturing accounting for a substantial share of those investments.

Agriculture is another area where the agreement reshaped market access. The elimination of Canada's milk classes six and seven, expanded access for US dairy products and preferential treatment for American poultry, eggs and wheat formed some of the most significant outcomes of the original negotiations. USTR figures show US goods exports to Canada and Mexico increased 34% between 2012 and 2022.

Digital commerce could also feature prominently in future negotiations. USMCA established common rules protecting digital trade and cross-border data flows while preventing customs duties on digital products. Any revisions could have implications for technology companies operating across North America.

Small and medium-sized businesses may also be affected. Under the agreement, Canada increased its duty-free de minimis threshold to C$150, while Mexico maintained the equivalent of $117 for duty-free shipments. Those thresholds could become part of future negotiations if the agreement is substantially revised.

The Road Ahead

USMCA covers one of the world's largest integrated trading blocs, linking more than 510 million people with a combined nominal gross domestic product (GDP) of around $31 trillion, representing roughly 30% of the global economy.

For now, the agreement continues to govern trade across North America exactly as before. What has changed is the political trajectory.

Instead of securing the 16-year extension envisioned when the agreement was negotiated, the United States has chosen to reopen discussions over its future. The coming rounds of negotiations, beginning with talks between Washington and Mexico later this month, and eventually extending to Canada, will indicate whether the Trump administration is seeking targeted revisions to its signature trade pact or a more fundamental restructuring of North America's trading framework.