Key Takeaways:
The USMCA's shift to annual reviews threatens to chill cross-border investment across North America's most integrated supply chains.
The Trump administration declined to renew the United States-Mexico-Canada Agreement for a 16-year term on July 1, triggering annual reviews that introduce fresh uncertainty for $1.5 trillion in annual North American trade.
"If you're investing in cross-border trade, and your investments are very much tied to guaranteed access to someone else's market, all that gets thrown up in the air with uncertainty," Joe Glauber, senior research fellow at the International Food Policy Research Institute and former chief economist at the USDA, said.
Canada and Mexico had backed the extension. U.S. Trade Representative Jamieson Greer said the administration would not extend the pact in its current form, citing trade imbalances and concerns over rules of origin, particularly regarding Chinese components in North American manufacturing supply chains. Under Article 34.7, the agreement remains in force while the three countries conduct annual joint reviews until 2036.
The shift from a 16-year stable framework to yearly renegotiation creates what economists describe as a "wait-and-see" dynamic for capital-intensive industries. Companies making multiyear investment decisions tied to tariff-free market access now face the risk that rules could change every 12 months, potentially delaying factory expansions, supply chain investments, and hiring across the automotive, agriculture, and industrial sectors.
Agriculture, which has become deeply integrated across the three countries since NAFTA took effect in 1994, faces particular exposure. Canada and Mexico rank among the largest export markets for U.S. farm goods, while American consumers rely on year-round imports of fruits, vegetables, and livestock products from its neighbors. The dairy industry alone ships more than 40 percent of all U.S. dairy exports by value to Mexico and Canada, according to the National Milk Producers Federation.
"Getting USMCA right matters enormously to our industry," Shawna Morris, executive vice president of trade policy at NMPF and the U.S. Dairy Export Council, said. "We strongly support the U.S. government's efforts to address these challenges and urge focused, intensive work by our trading partners to resolve them."
Glauber warned that annual negotiations could encourage protectionist proposals that invite retaliation. "If you say, 'We don't agree with that, we're going to put on seasonal tariffs,' Mexico is going to turn around and say, 'We don't like the fact that corn comes into our country during these months of the year,'" he said. "The next thing you know, you're back to where you were in the '80s, with a far more protectionist North American market."
The administration's concerns appear to center on manufacturing rather than agriculture. Greer pointed to rules of origin and Chinese components entering North American supply chains, particularly in the automotive sector. "I suspect most of it is not agriculture," Glauber said. "Unfortunately, this is another case where agriculture really suffers collateral damage."
David Hebert, senior research fellow at the American Institute for Economic Research, wrote in the Wall Street Journal that the annual review process undermines the core value of trade agreements. "The main value of a trade agreement isn't that it lowers tariffs but that it eliminates doubt," Hebert wrote. "A parts supplier in Michigan could sign a 10-year lease and order supplies because the terms governing what crossed the border were set."
The last time a major North American trade framework faced this level of uncertainty was during the NAFTA renegotiation in 2017-2018, when the threat of withdrawal pushed the Mexican peso to record lows and delayed $5 billion in planned manufacturing investments across the region, according to data from the U.S. Chamber of Commerce. The current average U.S. tariff on Mexican goods stands at zero under USMCA, while the average most-favored-nation tariff rate is 3.5 percent — meaning a reversion to WTO terms would represent a significant cost increase for cross-border supply chains.
Some industry groups welcomed the decision. Ranchers Cattlemen Action Legal Fund CEO Bill Bullard said pursuing separate trade agreements "presents an opportunity to correct the serious deficiencies in the NAFTA and USMCA, which have contributed greatly to the chronic contraction of the U.S. cattle industry."
Lawmakers representing agricultural states offered conditional support. Sen. Pete Ricketts of Nebraska said Mexico and Canada remain his state's top two export markets but added that "the current USMCA has issues that must be resolved." Rep. Dan Newhouse of Washington called the decision "an opportunity to strengthen enforcement — not a termination of it."
Administration officials have said they do not intend for negotiations to last the full 10 years remaining before the agreement expires. But for companies making billion-dollar investment decisions, the cost of uncertainty is already being priced in. The rational response for a manufacturer weighing a new plant with a 15-year payback period is to wait, build smaller, or build elsewhere — a dynamic that shows up not in headlines but in factories never constructed and workers never hired.
This article is for informational purposes only and does not constitute investment advice.
