President-elect Donald Trump’s frequent calls for new tariffs on foreign goods may have overshadowed another massive trade-related pledge he made about a month before the November election: renegotiate the US-Mexico-Canada Agreement.
Known as the USMCA, the first Trump administration negotiated the trade deal and replaced the quarter-century-old North American Free Trade Agreement, or NAFTA, in 2020.
A review of the trade pact was expected in 2026 regardless of Trump’s pledge, due to a requirement in the agreement.
But Trump’s proclamation has put Canada and Mexico—the US’ two biggest trading partners—on notice that he may pursue major changes. The renegotiation could play a major role in the president-elect’s other policy priorities, like national security, immigration, and crime. While the USMCA may not directly deal with those issues, the trade pact could be used as leverage.
“It’s a very functional tool for Trump to achieve whatever it is he’s hoping to achieve by negotiating,” said Francisco Sanchez, who served as undersecretary of commerce for international trade under then-President Barack Obama and is currently a partner at the law firm Holland & Knight.
“The fact that there is a mechanism in place to discuss a review is, I think, to his advantage,” he said.
Since winning the election, Trump has vowed to put tariffs on all goods coming from Canada and Mexico on the first day of his administration unless the two nations stem the flow of illegal immigrants and drugs across the border – which already prompted a phone call from Mexican President Claudia Sheinbaum and a visit to Trump’s Mar-a-Lago resort by Canadian Prime Minister Justin Trudeau.
What could a renegotiation of the USMCA mean?
Trump’s past comments suggest he may want to help boost the US auto industry, having floated a 100% tariff on foreign-made cars during his campaign.
The USMCA’s vehicle rules require a certain share of a car’s parts to come from any of the three countries – so there could be a stronger way to incentivize the manufacturing of parts in the US.
A provision that pushes up wages in Mexico, for example, could help boost manufacturing in the US. Currently, it can be cheaper to manufacture in Mexico where workers are usually paid less than they are in the US.
The president-elect may also be looking to get Mexico’s help in addressing China – specifically in stopping Beijing from circumventing Trump’s tariffs by entering the US market via Mexico.
“The negotiators will likely be looking at how to deal with Chinese parts and components,” said Gregory Husisian, a partner at Foley & Lardner who chairs the law firm’s International Trade and National Security Practice.
“A lot of these wonky, behind-the-scenes things will have as big or bigger impact than the stuff you see in the news,” he said.
Trump may also be looking at ways to shrink the US trade deficit, one of his favorite economic measures. He argues that the trade deficit – which happens when the US buys more foreign-made goods than it sells abroad – shows that other countries are taking advantage of the American economy.
However, the trade deficit is affected by many economic factors, including the value of the dollar and consumer demand, and the USMCA did not lead to a reduction.
The goods trade deficit with Mexico alone increased more than 78% between 2020, the year the USMCA took effect, and the end of 2023. And the deficit with Canada grew by about 27%, according to the latest government data.
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