The United States has decided not to renew the free trade agreement with Mexico and Canada, the USMCA, for another sixteen years. The agreement came into force in 2020, replacing the NAFTA treaty: it was negotiated during Donald Trump’s first administration, which called it “the best deal we’ve ever made,” before moving on to criticize it.
The USMCA will therefore remain active for another ten years and will continue to be subject to annual reviews; it could expire in 2036 unless the parties decide to renew it with modifications.
WHY DOES TRUMP NO LONGER LIKE THE USMCA?
The Trump administration’s dissatisfaction with the USMCA is due to the growth of the United States’ trade deficits in goods with the two North American neighbors: the deficit with Mexico reached $197 billion in 2025, while the deficit with Canada amounted to $48 billion. The deficit with Canada is mainly linked to oil imports – Canadian crude is a heavy variety, suitable for processing by U.S. refineries – while the deficit with Mexico is related to the relocation of American manufacturing companies, which are trying to reduce their exposure to China.
Mexico, in fact, has been considered a good alternative to China due to its geographical proximity to the United States, low labor costs, and industrial-commercial integration with the rest of North America (thanks precisely to the USMCA, and before that NAFTA). This process of “geographical shortening” of supply chains is known in jargon as near-shoring; when the country to which manufacturing is relocated is considered politically aligned or otherwise reliable, it is called friend-shoring. In the specific case of Mexico, friend-shoring and near-shoring coincide.
However, the Trump administration prefers reshoring to near-shoring: it wants American manufacturing to return home, to the United States, rather than relocating nearby.
WHAT DO AMERICAN COMPANIES WANT?
Trade between the United States, Mexico, and Canada is worth approximately $1.6 trillion per year: in 2020, when the USMCA came into force, it was worth $1 trillion.
Although the Trump administration does not seem to aim at abandoning the USMCA but rather renegotiating some parts, a hypothetical U.S. exit appears difficult: the agreement enjoys bipartisan political support and the favor of businesses.
Automakers, for example, consider it essential for the competitiveness of their supply chain: building all components in the United States would not be feasible. U.S. farmers and ranchers also call for the continuation of free trade in North America, as Mexico and Canada purchase over one-third of U.S. agricultural exports. In general, the decision not to automatically renew the USMCA fuels uncertainty and could discourage investments in strengthening North American supply chains.
WHAT NOW?
The Trump administration has said it intends to proceed with bilateral negotiations with Mexico and Canada.
Those with Mexico will take place in the penultimate week of July and will focus on tightening rules of origin for automobiles and other industrial products, a measure aimed at countering Chinese penetration in Mexico and, by extension, in the rest of the region. The White House wants vehicles produced in North America to contain at least 50 percent U.S. components, in order to raise the overall regional content share above 80 percent; but Mexico City is resisting.
Relations between the United States and Canada are even more complicated, because Ottawa is trying to reduce its commercial dependence on Washington, and Trump has clashed with Canadian Prime Minister Mark Carney, who is ideologically very distant.
