USMCA ‘Deadline’ Day Results in US Declining to Renew the Pact
As widely expected, the United States has declined to renew the US-Mexico-Canada Agreement (USMCA) as it now stands, but it remains in effect as country trade representatives will keep negotiating new terms. As a result, the steel industry in the US—both management and labor—effectively got what they wanted, but their customers — many steel using industries — were hoping the trilateral deal would be maintained in the interest of predictability and certainty.
“The United States did not agree to renew the USMCA in its current form,” US Trade Representative Jamieson Greer said in statement Wednesday afternoon. “As a result, the USMCA is not renewed. The United States will continue to engage with Mexico and Canada to address the Agreement’s shortcomings and our trade deficits with these countries,” he explained. “However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination,” Greer continued, “As previously announced, the United States will meet with Mexico the week of July 20 for a third round of bilateral negotiations related to the USMCA joint review.”
By opting out of the renewal, the US will compel the nations to meet every year to negotiate changes. Many North American business groups had called for the agreement to be extended. The US Chamber of Commerce, for instance, had warned that manufacturing and agriculture rely heavily on cross-border certainty for business decisions and capital investment planning, and has been pressing for “predictable rules for North American commerce.”
But the American Iron and Steel Institute and the Steel Manufacturers Association pushed for change, contending annual reviews give the US negotiators leverage to fix certain elements of the pact. One major aim of the US is to ensure that third countries are not using the USMCA to ship products like steel made outside North America ‘through the back door,’ as several domestic steel executives have maintained.
Steel’s biggest Union also felt the USMCA fell short. The United Steelworkers (USW) weighed in early Wednesday, calling for stronger labor protection and better enforcement.
“The North American Free Trade Agreement (NAFTA) was an unmitigated disaster that cost hundreds of thousands of jobs and hollowed out manufacturing communities across the United States,” said USW International President Roxanne Brown in a statement. “With the USMCA, we had an opportunity to begin fixing some of these problems, to improve wages and working conditions in Mexico, and to help end the race to the bottom that ensnared workers across North America.”
She added: “Unfortunately, the promise of the USMCA has fallen short, due to Mexico’s lax enforcement of labor laws, limited corporate accountability, and continued offshoring of production and jobs to Mexico. And while the USMCA’s Rapid Response Mechanism for labor violations helped some workers form independent unions, most Mexican workers still struggle to exercise their rights or earn fair wages. This hurts workers across North America as corporations continue to pit them against one another in the hunt for ever greater profits.”
Brown maintains that the review provides an opportunity to make meaningful improvements to the USMCA. “We can strengthen rules of origin and enact real penalties for violations,” she emphasized. “We can reinforce the Rapid Response Mechanism to help shore up labor rights in Mexico, bringing up wages and ensuring workers have a voice on the job. And we can eliminate corporate loopholes that undermine worker and environmental protections.”
She summarized: “We need an economy that works for everyone, and as we review the USMCA, we must find lasting ways to put workers and their communities first.”
For the record, Mexico had officially endorsed retaining the agreement for 16 years, and Canada was also hoping for that. But Canada’s Prime Minister Mark Carney this week downplayed its retention. “We’re expecting a constructive exchange,” he told reporters on Tuesday. “I wouldn’t expect any drama. I’m not looking for my pen.”
In short, the US administration’s non-renewal decision means the trilateral trade pact — touted by President Donald Trump some six years ago — will miss out on an automatic 16-year extension.
From celebrating to uncertainty
It was January 29, 2020, when Trump in his first term signed into law a major overhaul of the rules of trade with Canada and Mexico, known today as the USMCA. In a ceremony then on the South Lawn of the White House, Trump celebrated the fulfillment of one of his key campaign promises. “Today, we’re finally ending the NAFTA nightmare,” Trump said, adding that renegotiating the North American Free Trade Agreement was “probably the No. 1 reason that I decided to lead this crazy life that I’m leading right now.”
That was then. This is now. The non-renewal decision was telegraphed by Trump as recently as last month. Trump said in June that he was “not looking to renew’’ the trade pact with Canada and Mexico. “We don’t need anything that they have,” he said.
In fact, any USMCA country can pull out of the pact provided it gives its two partners six months’ notice. Will Trump still play that card?
“Yes, Trump could withdraw from the deal. But it’s a safe bet he’s bluffing,” wrote Scott Lincicome, vice president of general economics and Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, in a commentary published Tuesday by Cato. He explained: “First, there are the economics. While the NAFTA/USMCA’s macro effects are relatively modest, the agreement has facilitated an enormous amount of trade and investment since it took effect in the 1990s.”
Lincicome added: “In 2024 alone, trilateral trade in goods and services totaled $1.99 trillion, and regional foreign direct investment reached almost $380 billion — an increase of 37% and 16%, respectively, since the USMCA took effect in 2020. Mexico and Canada are now the top two US trading partners, well ahead of third-place China.”
What’s more, he considered July 1 as a “soft deadline,” because the deal does not terminate immediately
The US had several options. “Extend the agreement for another 16 years, announce that it is ending the agreement (which would keep it in place until 2036), move to annual reviews, withdrawal with six-month notice, or possibly switch the structure to two bilateral agreements rather than a trilateral agreement,” The Conference Board wrote in a report earlier this week.
“Nobody will get everything they want, and talks will be a slog at times. But there’s common ground on several core issues — and, of course, a new US administration just 30 months away,” Lincicome wrote. “None of this is to say that the coming negotiations will be costless. A 10-year expiration window may be a lifetime in politics, but it introduces new and significant uncertainty for global businesses that make large-scale expansion plans on multi-decade timelines. So, on the margins, missing the July 1 deadline will likely reduce North American investment.”
The problem of uncertainty for businesses was echoed by The Conference Board: “Moving to two bilateral agreements would require an extended period of negotiation and introduce significant new policy uncertainty. Annual reviews would also introduce greater policy uncertainty, making it difficult for businesses to make investment decisions, and could increase compliance costs.”