Tourists from Chattanooga check into resorts in Cancun. Canadian auto parts supply factories in the U.S. and vice versa. Happy hour revelers sip Mexican tequila and mezcal in Seattle bars. This cross-border trade amounts to $1.9 trillion annually or $5 billion daily between the U.S., Canada, and Mexico. These countries have become the top U.S. trading partners, surpassing China.
The stakes are high when adjusting trade rules among these nations. After years of tariffs under former President Donald Trump, businesses desire more stability. However, it seems unlikely. The Trump-era regional trade agreement, the United States-Mexico-Canada Agreement (USMCA), comes up for review. The process may last months or longer, with a complex path ahead.
“There will be significant drama this summer,” stated Diego Marroquín Bitar of the Center for Strategic and International Studies at a USMCA-focused forum.
The U.S. demands could compel Canada and Mexico to grant a portion of auto production to the U.S., possibly creating more American jobs. But such a shift can disrupt established supply chains, raising car prices, which currently average nearly $50,000, amid consumer frustrations about the high cost of living. Trump has threatened to withdraw from his own deal.
In 2020, USMCA replaced the North American Free Trade Agreement (NAFTA) from 1994, which had removed most trade barriers between the countries. Critics said NAFTA cost jobs by encouraging U.S. firms to move factories to Mexico for lower wages, then return goods tariff-free. USMCA retained similar features, pushing for higher wages at factories and ensuring more production originates from North America to block Chinese goods from sneaking in without tariffs.
USMCA includes a two-decade renewal period every six years. Renewing it on Wednesday might continue it unchanged until 2036, but further improvements are likely necessary. Any USMCA nation can withdraw with six months’ notice, a warning Canada and Mexico fear Trump might activate. Trump expressed no interest in renewing the deal, arguing there’s nothing he needs from Canada or Mexico.
Oscar Ocampo, from the Mexican Institute for Competitiveness, believes Trump’s real goal is maintaining pressure on Mexico over security and immigration. Talks about renewal are happening between the U.S. and Mexico, but Canada remains sidelined.
Patrick Childress, a partner at Holland & Knight, describes a potential scenario where the U.S. and Mexico agree on changes and then present them to Canada unilaterally. Canadian Prime Minister Mark Carney noted an upcoming virtual meeting and expressed a priority for updating USMCA.
The U.S. seeks to curb Chinese goods; however, the contentious issue is demanding more products be made in North America, particularly in the U.S. USMCA requires 75% of auto components be sourced from North America, up from 62.5% under NAFTA. The U.S. aims to raise this threshold, despite manufacturers needing significant time to adjust.
Further, the U.S. proposed that 50% of cars be produced domestically, a requirement unendorsed by USMCA countries. Ocampo identifies it as a red line for Mexico and Canada. Marcos Carias of credit insurer Coface highlighted that only 20% of Mexican and Canadian cars meet this 50% target, which could impact prices by 5-7% on specific models like the Ford Maverick, Chevrolet Equinox, and Nissan sedans.
Many businesses crave consistent trade policies. Shawn Miller, co-founder of PKGD Group in Holland, Michigan, which imports Mexican agave spirits, stressed the importance of stable trade rules. PKGD has seen sales soar by 62% this year, but 2022 was tumultuous.
Trump initially imposed a 25% import tax on Mexican and Canadian goods, only to retract the tariff for USMCA-eligible products a month later. This move disrupted PKGD’s shipments, leaving them with $105,000 in added costs when Mexican beverages were taxed. Facing unpredictable tariffs, PKGD and their Mexican partners contemplated handling costs together.
Miller emphasized that their businesses lack the resources for dedicated trade departments, legal teams, or lobbyists focused on trade policy.
AP’s Maria Verza in Mexico City and Rob Gilles in Toronto also contributed to this article. The story was translated from English by an AP editor using AI-assisted tools.