Ensure North American Competitiveness Through the United States-Mexico-Canada Agreement Review

This brief is part of “Election 2024: Policy Playbook,” a series by Rice University and the Baker Institute that offers critical context, analysis, and recommendations to inform policymaking in the United States and Texas.

The Big Picture

• Despite its flaws, the United States-Mexico-Canada Agreement (USMCA) — like its North American Free Trade Agreement (NAFTA) predecessor — is vital to the economic well-being of the three parties involved. 
• The ability of U.S. manufacturing to compete with the EU and with China is as dependent on an integrated North American economy now as it was 30 years ago. 
• Terminating or weakening the USMCA would have an adverse impact on the U.S., Mexican, and Canadian economies — and could jeopardize North American cooperation on issues of vital interest to the U.S.
• Under such circumstances, the USMCA parties must approach the mandatory review of the USMCA scheduled for July 2026 carefully and in good faith, reflecting a common commitment to preserving and expanding North American competitiveness.

Summarizing the Debate

The USMCA is essential toward supporting U.S. manufacturing’s ability to compete with the EU and with China and ensuring sustainable economic development and collaboration across the U.S., Mexico, and Canada. The North American integrated economy amounted to more than $1.8 trillion in annual goods and services trade in 2022, whether the products were automobiles, auto parts, electronic vehicle (EV) batteries, steel, or other products. Terminating the USMCA, or even seriously restricting it, could significantly damage the economies of U.S., Mexico, and Canada, while also jeopardizing Mexican cooperation on immigration, drug trafficking, and other key issues of vital interest to the U.S. Thus, setting the priorities of all parties for the USMCA’s mandatory review is paramount toward securing an agreement in a timely fashion and further strengthening and developing economic competitiveness. 

The joint review of the USMCA is open-ended, as it is designed to permit an extension but does not require one until 2036. The review also reflects the desirability of assuring that the USMCA — unlike NAFTA — not become virtually impossible to modernize and permits the parties to improve on what will be a six-year-old agreement by 2026. The agreement terms mandate a review, not a renegotiation, but views in all three of the countries involved differ as to exactly what a “review” means. Ultimately, the agenda will depend on what the parties want to discuss, which could “include anything from minor tweaks to threats of withdrawal unless major changes are made.” It is important to note that, independently of the review, under Article 34.6 of the agreement, any party may withdraw from the USMCA with six-month notice.

With a new Mexican president taking office on Oct. 1, 2024, and an American president on Jan. 20, 2025, approaches to the review are difficult to predict. It is understood that the three USMCA governments have begun preparations for the review, including the solicitation of stakeholder views. However, the work to date seems to be very preliminary and will be subject to changes dictated by the new Mexican and U.S. administrations, and by a new prime minister in Canada.

Given the nearly two years before the review’s formal start on July 1, 2026, the parties have ample opportunities to decide what issues are to be placed on the table and which issues are to be prioritized, assuming that each government begins its internal considerations and consultations with stakeholders soon.

Expert Analysis

Any consideration of future U.S. attitudes toward the USMCA should consider the fact that neither Kamala Harris nor Donald Trump is necessarily a fan of either the USMCA or free trade agreements in general. In December 2019, Harris was one of only 10 senators to vote against the revised USMCA, ostensibly because it did not explicitly deal with climate change. While president, Trump along with his then U.S. Trade Representative Robert Lighthizer were responsible for concluding the USMCA and successfully obtaining congressional consent by lopsided margins; neither they nor other key members of the Republican Party are advocates of U.S. tariff reduction or other means of encouraging U.S. imports. This implies that a second Trump term could be a further challenge to free market economics. 

Trump has not articulated a position on the USMCA review, although he has proposed, if elected, to apply 10–20% tariffs on all U.S. imports with a 60% tariff on China — apparently regardless of the proposed tariffs being inconsistent with the USMCA and General Agreement on Tariffs and Trade (GATT) or their likely inflationary impacts on U.S. businesses and consumers. Harris has proposed, in the course of the mandatory USMCA review, to address Mexican auto imports as well, contending that the USMCA made it “far too easy” for auto producers to outsource jobs. Trump has also threatened to impose a 100% tariff on all auto imports from Mexico, although it seems doubtful that such action would survive a court challenge. A Harris administration’s yet-to-be-articulated policies to prevent U.S. imports of EVs manufactured in Mexico by Chinese auto companies may also conflict with USMCA provisions. As president, Harris might seek to incorporate climate change provisions in a revised USMCA. In any event, it seems likely that, if elected president, Harris would continue the “buy American, invest American, employ American” policies of her predecessor.

Should the review turn into an extensive renegotiation, the challenges will increase. Even though the United States, at least, has no overwhelming pressure to resolve issues in 2025, the failure of all parties to agree on changes only means that a further review must be conducted annually until 2035, which would create uncertainty for many businesses and investors. Moreover, a significant renegotiation would result in a new protocol, requiring approval by the U.S. Congress. In the absence of trade promotion authority legislation, the House and Senate could propose numerous amendments to the protocol. While the economic importance of the USMCA to the United States suggests that a protocol would ultimately be approved, the delays could extend into years rather than months.

Policy Actions

1. All parties should avoid seeking to turn the review into a broad renegotiation. This could jeopardize future North American economic cooperation and create uncertainties for stakeholders who depend on predictable duty- and quota-free trade within North America. 
2. Each government should focus on a few key issues. For example, the U.S. could focus —in addition to automotive trade — on key elements of the extensive lists in the “2024 National Trade Estimate Report on Foreign Trade Barriers” of alleged trade impediments imposed by Canada, which concern certain agricultural products and alcoholic beverages; deficient intellectual property protections; and taxation of digital services. For Mexico, the priorities could include market access for genetically modified corn, glyphosate, and agricultural biotechnology; improved intellectual property protection; limitations on electronic payment and telecommunication services; and Chinese investment in Mexican EV production. Numerous Mexican violations of the USMCA could also be on the agenda.
3. All parties should recognize the high importance of dealing with climate change. In North America and the world, USMCA parties — regardless of whether they are willing to refer explicitly to climate change as Harris would prefer and as Trump would oppose — should seek strategies to work more effectively together on addressing climate-related issues, such as regional trade in clean energy and Mexico’s electrical energy crisis. Other areas of increased cooperation could include developing reliable chip supply chains and North American supplies of EV batteries and critical EV battery materials. 
4. All participants should remember the key objective of NAFTA and now the USMCA: Keep North America and its individual countries economically healthy and competitive. Parties should prioritize elevating competitiveness with the EU, China, and Asia in production of cutting-edge chips, EVs and EV batteries, steel, agricultural products, e-commerce, and artificial intelligence, among others. Such cooperation is essential if the U.S., Mexico, and Canada are to effectively counter the threat of Chinese economic dominance across North America and the developing world.

The Bottom Line

Although the mandatory review of the USMCA is not scheduled until July 2026, it is critical that all parties involved begin soon to consider changes to the agreement carefully and in good faith. In doing so, they can promote a shared commitment to preserving and expanding North American competitiveness and sustainability. A failure to move forward with the review, whether in 2026 or later, would seriously undermine North American regional trade and the agreement that regulates it.

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