Council of Councils
Think Global Health
Online Store
Shannon K. O’Neil is senior vice president, director of studies, and Maurice R. Greenberg chair at the Council on Foreign Relations. Julia Huesa is the special assistant and research associate to the senior vice president, director of studies, and Maurice R. Greenberg chair at the Council on Foreign Relations.
The United States-Mexico-Canada Agreement (USMCA), which underpins North America’s economic integration, requires a joint review by July 2026 and agreement by all three parties to continue. This review now looks poised to become more of a full-fledged renegotiation as President Donald Trump seeks to leverage the discussions to reshape North American trade, migration, and security, as well as address China’s growing influence in regional supply chains.
What is the USMCA?
More on:
The USMCA replaced the North American Free Trade Agreement (NAFTA), signed in 1993. NAFTA created a free-trade zone between the United States, Canada, and Mexico, and established rules to protect intellectual property, investment, workers’ rights, and the environment. During the twenty-five years that NAFTA was in place, North American trade quadrupled, reaching over $1.4 trillion. Still, critics blamed the agreement for U.S. job losses, especially in manufacturing. President Trump took office in 2017 intent on renegotiating NAFTA, calling it “one of the worst trade deals ever made.”
The USMCA entered into force in July 2020 after more than two years of negotiations. The agreement created stronger mechanisms to enforce labor standards, established stricter rules of origin for North American automobiles, expanded U.S. farmers’ access to Canada’s dairy markets, changed dispute settlement processes, and set up guardrails for digital trade and e-commerce. It also introduced a sixteen-year sunset clause and six-year review requirements.
Why does it matter?
The USMCA buttresses the United States’ two most important trade relationships, with Canada and Mexico together forming the largest U.S. export market. U.S. companies send more than $800 billion in goods and services—over a quarter of total U.S. exports—to the two countries, over four times what the United States sends to China. Intraregional trade supports more than four million jobs in the United States, roughly half of them in manufacturing.
Over the past five years, the USMCA has helped the United States reduce its supply chain dependence on China. In 2023, Canada and Mexico displaced China as the United States’ top import partners for the first time in two decades, with total North American trade exceeding $1.8 trillion. At the supply chain level, the shift is even more pronounced. In 2020, nearly 40 percent of the value of U.S. auto imports from Mexico originated in the United States, compared to just 2 percent from China.
What’s at stake in 2026?
A mandatory review of the USMCA must be completed by July 2026. The future of tariff-free trade hinges on the review’s outcome: If any country objects to extending the USMCA, it triggers an annual approval process and a countdown to the agreement’s end in 2036, increasing uncertainty for exporters and cross-border businesses.
More on:
Commercial challenges. The upcoming review will address both commercial challenges within the USMCA as well as broader foreign policy concerns. The United States will press Mexico to walk back its ban on genetically modified (GMO) corn—which a panel ruled violates the USMCA—and scrutinize Mexico’s state-centered energy policies. These include recent constitutional reforms that prioritize the state utility company over private companies, ban third parties from providing transmission and distribution services, and dismantle Mexico’s hydrocarbon and antitrust regulators.
In his second term, Trump is also likely to press Mexico on its growing trade deficit with the United States. Since the USMCA entered into force, the U.S. trade deficit with Mexico has grown by nearly 50 percent, reaching $160 billion in 2023. Still, trade in both directions has increased, as Mexico often serves as the final assembly point for U.S.-made products. Indeed, in 2024, Mexico briefly became the top destination for U.S. exports, surpassing Canada. Negotiators will also try to resolve disputes over Canada’s digital services tax and U.S. noncompliance [PDF] with USMCA auto rules.
To lessen Trump’s ire, Mexico could try to buy more from the United States. But its current ban on GMO corn—first under previous President Andrés Manuel López Obrador (commonly known as AMLO) and now under Claudia Sheinbaum—will make it harder to do so without a policy change, as more than 90 percent of U.S. corn is genetically modified. And while Mexico remains a top three U.S. export market, U.S. companies have been losing market share to competitors from other countries, including China, in capital, intermediate, and finished goods.
Another major focus will be preventing China from accessing the U.S. market tariff-free via Mexico. Here, the United States will continue to pressure Mexico to impose tariffs on Chinese imports. Since early 2024, Mexico has introduced tariffs on hundreds of products relating to steel, aluminum, textiles, chemicals, and electrical materials, among other things, from countries with which it lacks trade agreements, including China. Mexico’s economy ministry is also working with top importers of Chinese parts—auto companies and electronics companies among them—to find alternative suppliers in Mexico or the United States. Concerns over Chinese foreign direct investment in Mexico, particularly in vehicle production and assembly, could prompt talks about creating a North American review process similar to that of the Committee on Foreign Investment in the United States to screen investments regionwide.
Migration and security. Trump is likely to force issues such as migration and security into the trade talks. U.S.-Mexico border crossings have risen dramatically since his first term, with more than two million people coming annually over the last three years. The majority of migrants now hail from beyond Mexico and Central America’s Northern Triangle, including Cuba, Ecuador, and Peru, as well as nations in Africa and Asia. AMLO and Sheinbaum, respectively, have worked closely with the United States to manage these flows, helping reduce 2024 border encounters to levels not seen since the COVID-19 pandemic. But there are limits to what Mexico can do. Its migration agencies are underfunded and overwhelmed, and the country itself is receiving hundreds of thousands of asylum seekers each year. Though Trump will pressure Mexico to step up enforcement, temporary measures such as breaking up caravans and busing migrants south fail to provide long-term solutions.
Trump has threatened to impose 25 percent tariffs on all Mexican imports if the country fails to curb drug trafficking into the United States. In her first one hundred days, Sheinbaum’s administration has taken a more confrontational approach to organized crime, targeting high-crime states like Sinaloa. In December 2024, after Trump threatened tariffs, Mexican soldiers seized over one ton of fentanyl pills—the equivalent of more than twenty million doses and worth nearly $400 million—the largest such bust in the country’s history. But Sheinbaum’s successful security strategies when she was mayor of Mexico City will be hard to replicate nationally, as they depended on a large local civilian police force, tens of thousands of cameras for surveillance, and significant investigative work into organized crime rings.
What will new governments mean for the USMCA?
Domestic political shifts in all three countries will make it harder to find consensus. In Canada, turmoil following Prime Minister Justin Trudeau’s recent resignation weakens the country’s negotiating position. With elections scheduled for October, talks will likely begin with a lame-duck government. In Mexico, Sheinbaum’s constitutional reforms—particularly those reshaping judicial and autonomous agencies—add to the negotiation difficulties. And despite spearheading the USMCA’s passage during his first term, Trump will not be bound by loyalty to the agreement, instead likely taking a hard line to advance his own political agenda. All this leaves much uncertainty over the future of the United States’ most consequential free trade agreement, which connects some five hundred million consumers and represents almost a third of global gross domestic product.
This work represents the views and opinions solely of the authors. The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional positions on matters of policy.