The United States, Canada and Mexico are entering a tense new phase of trade talks as the U.S.-Mexico-Canada Agreement comes up for renewal. The pact governs one of the world’s most important commercial relationships, covering the flow of cars, auto parts, energy, food, alcohol, tourism and countless everyday goods across North America. With the United States trading about $1.9 trillion a year with its two neighbors, businesses across the region are hoping for stability. Instead, they may be facing months of uncertainty.
A Trade Relationship Too Big to Ignore
North America’s economy is deeply connected. Tourists from Chattanooga vacation in Cancun. Canadian auto parts move into factories in the American Midwest. Mexican tequila and mezcal are poured in bars across Seattle. These everyday examples are part of a much larger trade system worth about $5 billion a day.
Canada and Mexico have now replaced China as America’s top two trading partners. That makes the renewal of the USMCA more than a technical trade review. It is a major economic moment for the three countries.
The talks come after a year of President Donald Trump’s shifting tariff policies, which created confusion for companies that depend on predictable rules. Many businesses want the USMCA renewal process to restore calm. But trade experts say the road ahead may be difficult.
“There’s going to be a lot of drama this summer,” Diego Marroquín Bitar, a fellow in the America’s program at the Center for Strategic and International Studies, said last week at a USMCA forum sponsored by the Cato Institute.
A Deal Built to Replace NAFTA Faces Its Own Test
The USMCA replaced the North American Free Trade Agreement in 2020. NAFTA, which had been in place since 1994, removed most trade barriers between the United States, Canada and Mexico.
Trump and other critics argued that NAFTA hurt American workers by encouraging U.S. companies to move factories to Mexico, where wages were lower, and then ship products back to the United States duty free.
The USMCA kept much of NAFTA’s basic structure, but added stricter rules. It pushed factories to pay higher wages and required more products to be made in North America in order to qualify for duty free treatment. One of the goals was to stop Chinese goods from entering the United States through Mexico or Canada while avoiding tariffs.
The agreement also included a six year review clause. That provision now brings the pact back to the negotiating table.
Renewal Deadline Brings Pressure, Not Quick Answers
The formal renewal deadline is Wednesday, but experts do not expect an immediate breakthrough. Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness, said, “nothing is going to happen July 1.”
The three countries could agree to renew the USMCA as it stands for another 16 years, extending it until 2042. But that outcome is considered unlikely. Instead, negotiators are expected to keep working on changes for months, and possibly longer.
They have until 2036, when the current term ends, to reach a new agreement. If no deal is reached by then, the pact expires. But there is another concern for Canada and Mexico. Any country can withdraw from the agreement with six months’ notice.
Trump has already raised that possibility. In June, he said he was “not looking to renew’’ the pact with Canada and Mexico. “We don’t need anything that they have,” he said.
Ocampo believes Trump may not truly want to abandon the treaty. Instead, he suspects Trump is using uncertainty as leverage over Mexico on security and immigration.
Canada Watches From an Uneasy Position
So far, the United States and Mexico have held talks about renewing the agreement, while Canada has been largely left out of the early discussions. That has raised concerns in Ottawa.
Patrick Childress, a partner at Holland & Knight and a former U.S. trade negotiator, warned that Canada could be presented with a deal shaped mainly by Washington and Mexico City.
“The danger for Canada is this: that the U.S. government and the Mexican government reach agreement on changes to core provisions of the treaty and then show up in Ottawa and say: ‘Here’s what we’ve agreed to. You can take it or leave it.’’’
Canadian Prime Minister Mark Carney said the three trading partners plan to meet virtually on Wednesday. He added: “I’m not looking for my pen.”
Carney later said in French that his priority is to update the USMCA. He also noted that the United States cannot approve a new agreement without Congress.
Auto Rules Could Become the Biggest Fight
The most difficult issue may be cars. The United States wants the updated trade pact to require more production inside North America, and more specifically inside the United States.
Under the USMCA, automotive products must be 75% made in North America to qualify for duty free treatment. That was already an increase from the 62.5% requirement under NAFTA.
The United States now wants to raise that threshold even higher. Childress said that automakers already “have been fine-tuning their supply chains for years to be able to hit that 75% mark.” A higher standard would require more time, investment and planning.
Washington is also pushing for a new rule that would require 50% of cars to be made in the United States. Carney confirmed that demand in early June. At the moment, no USMCA country is guaranteed a specific share of vehicle production.
Ocampo said the idea is highly controversial. “It’s a red line for both Mexico and Canada, and it goes against the spirit and the letter of regional integration,” he said.
Higher Costs Could Hit Popular Vehicles
A U.S. production requirement could disrupt auto supply chains that have been built over decades. It could also increase prices for American consumers at a time when the average new vehicle already costs nearly $50,000.
Marcos Carias, an economist at the credit insurer Coface, said only 1 in 5 Mexican and Canadian cars imported into the United States would currently meet the proposed 50% U.S. content standard.
Models that could face higher costs include Ford’s Maverick compact pickup truck, Chevrolet’s mid-size Equinox SUV and some Nissan sedans, all made in Mexico. Carias’ “back of the envelope” calculations suggest prices could rise 5% to 7% on the models most affected.
That creates a political challenge. More U.S. content rules could support some American factory jobs, but they could also make vehicles more expensive for households already frustrated by the cost of living.
Small Businesses Want Rules They Can Trust
For many companies, the biggest problem is not only the final trade rule, but the constant uncertainty. Shawn Miller, co-founder of PKGD Group, imports agave spirits such as tequila, mezcal and raicilla from family producers in Mexico.
“My interest in this USMCA renewal is just consistency, right?” Miller said. “If the rules change, the rules change. But we’d really like to know (what they’re going to be) and we’d like them to stay that way for a while.”
PKGD, based in Holland, Michigan, has been growing quickly. Sales are up 62% so far this year after rising 100% in 2025 and 300% in 2024.
But last year brought costly confusion. Trump placed a 25% import tax on Mexican and Canadian goods in February, then a month later exempted products eligible for USMCA treatment. Mexican spirits can enter the United States duty free under the pact.
During that period, three truckloads of Mexican spirits imported by PKGD crossed into the United States and were hit with the 25% tariff. The bill was $105,000.
“For us, it was one unfortunate day!’’ Miller said.
The uncertainty forced PKGD and its Mexican producers to discuss how much of the cost each side could handle. “What can we absorb? What can they absorb?” Miller said. “How can we mitigate this?”
Miller added that he and his suppliers “are not large multinational corporations with dedicated trade departments, teams of lawyers, or lobbyists focused on trade policy.”
Complex Rules Leave Smaller Firms Behind
Kerry Mellin, a veteran Hollywood costume designer, knows how difficult trade rules can be for small companies. In 2014, she started EazyHold in Ventura County, California. The company sells silicone grips that help people with disabilities, including cerebral palsy and Parkinson’s, hold items such as spoons, cups, pens and toothbrushes.
Mellin tried to sell the grips in Canada, where she has dual citizenship, but sales struggled. She believes the silicone she imports from Asia may have stopped her products from meeting USMCA’s North American content rules when they crossed from the United States into Canada.
Mellin thinks EazyHold might qualify for duty free treatment, “but the rules are complex and unpredictable enough that I genuinely can’t be sure without hiring a trade attorney.”
She believes the rules of origin should be loosened for small businesses, not tightened. In her view, the system should stop large companies from routing Chinese products through North America, while not punishing small firms that make useful products.
“I do understand why the rule exists — to stop companies from routing Chinese goods through Mexico,” she said. “I just wish it could tell the difference between that and a small family business in California making grip aids for people who can’t hold a fork. I’m not the problem they were trying to solve.”
A Region Searching for Stability
The USMCA renewal talks begin with North America’s trade future hanging in the balance. The United States wants tougher rules that bring more production home. Canada and Mexico want to protect the regional supply chains that have made the continent one of the world’s most integrated markets. Businesses want something simpler: clear rules they can plan around. Whether negotiators can deliver that stability will shape the cost of cars, the flow of goods and the future of trade across the region for years to come.
