USMCA review begins as US signals exit from $2 trillion pact

The US-Mexico-Canada Agreement governing nearly $2 trillion in annual trade enters a decade-long countdown to expiry after Washington signals it will not extend the pact.

The Trump administration is expected to formally declare Wednesday it will not extend the USMCA, triggering a six-year review session that starts a 10-year clock toward the pact's expiration on July 1, 2036.

"We expect July 1st to come and go, and for the United States to not confirm its wish to extend," said Greta Peisch, a former USTR general counsel now at Wiley Rein in Washington.

The declaration kicks off a sunset clause negotiated during Trump's first term, under which the three countries will hold annual review sessions for the next decade. Failure to reach revised terms keeps the pact in indefinite limbo until it lapses. The US goods trade deficit with Mexico has widened since USMCA took effect in 2020, partly as companies shifted supply chains away from China after Trump imposed steep tariffs on Chinese goods.

At stake is the architecture of North American trade, with the US now holding formal negotiating rounds with Mexico alone while leaving Canada on the sidelines. The US has demanded that all North American-built vehicles contain 50 percent US-specific content, pushing regional requirements to 82 percent. A Mexican official said both countries broadly agree on the problems — declining US manufacturing jobs, falling US content in autos and rising transshipment of Asian parts — but are still negotiating how to fix them.

Auto Content Rules Drive the Hardest Bargaining

The US demand for 50 percent US-specific content in vehicles represents the most aggressive proposal in the current talks. Vehicles assembled in Mexico and Canada would still face some level of tariffs under the framework Greer has outlined, according to people familiar with the discussions. A Mexican official said the two sides have discussed a universal global tariff of 15 percent on autos, with a lower rate for vehicles from Mexico and Canada if they agree on stricter rules of origin.

The previous 25 percent tariff escalation on Chinese goods in 2018 and 2019 reshaped North American supply chains, pushing auto and electronics assembly into Mexico. That shift contributed to the widening US goods trade deficit with Mexico that Trump now cites as a reason to abandon the pact he once called "the fairest, most balanced, and beneficial trade agreement we have ever signed into law."

Canada Remains on the Sidelines

While the US and Mexico have scheduled a third round of negotiations for the week of July 20, USTR Jamieson Greer has planned no formal talks with Canada. The list of bilateral irritants is long: Canada's supply-managed dairy sector, where tariffs can exceed 200 percent on imports above quota levels; provincial Buy Canadian policies that restrict US firms in government procurement; and the removal of American liquor from store shelves by Ontario, Quebec and British Columbia in response to Trump's tariffs.

Prime Minister Mark Carney's government has said supply management will not be on the negotiating table. Canada's digital services tax, which Ottawa pledged to repeal but had not eliminated by the end of 2025, remains another unresolved issue flagged in USTR's 2026 National Trade Estimate report.

Mexican President Claudia Sheinbaum responded to the expected US declaration by signing a letter calling for the trade agreement to be extended for 16 years. The sunset clause, controversial when it was enacted, is separate from a termination clause that any of the three leaders could exercise to trigger a US withdrawal within six months.

If the three countries fail to reach agreement on revisions, the USMCA would remain in force with annual review sessions for the next decade, expiring automatically on July 1, 2036. The uncertainty already weighs on the nearly $2 trillion in annual trilateral trade that moves under the pact's rules, with automotive supply chains, agricultural exports and energy markets all exposed to disruption if negotiations stall.

This article is for informational purposes only and does not constitute investment advice.