Mexico and Canada look for new solutions as US officials decline USMCA renewal

President Donald Trump championed the USMCA during his first term, but has now thrown the accord into question citing trade imbalances between the US and its North American neighbours.

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By Julian DeLucia July 3, 2026

As trade officials from the United States declined to renew the United States-Mexico-Canada Agreement (USMCA), officials from Canada and Mexico are poised to react as the deal, worth nearly $2 trillion a year, sees an uncertain future, El Financiero reported. 

The two US neighbours have previously signalled they want the agreement largely preserved, but President Donald Trump, who championed the accord during his first term, appears ready to use the review as leverage. 

"There is only a small chance" Trump will actually invoke the exit clause, given the toll it would take on US trade and investment, particularly in Midwestern swing states, Oxford Economics said in a report published on June 30. The firm added it no longer anticipates a broad rollback of tariffs, forecasting instead possible "limited agreements to reduce sectoral tariffs". Mexico "appears to be the most exposed country, but its exports have held up", the report said, while Canada is attempting to diversify its export markets, a process that will take time.

Roughly 80% of Mexican exports go to the US, and Mexico City has said its priority is securing preferential tariff treatment relative to other trading partners, or avoiding tariffs entirely. Two rounds of bilateral talks between Mexico and the US have already taken place, with a third round set for late July.

About 70% of Canadian goods exports, including millions of barrels of oil daily, are shipped to the US. Talks between Ottawa and Washington over tariff relief advanced substantially last October before Trump broke them off after Ontario ran a US television advertisement featuring former President Ronald Reagan criticising tariffs.

Some Canadian provincial liquor boards barred sales of American alcohol last year in response to Trump's tariffs, restrictions Washington wants lifted.

The White House has also raised concerns over the Mexican government's favouritism towards state oil company Petróleos Mexicanos (Pemex), curbs on private-sector participation in the energy industry, and the enforcement of labour laws in Mexico.

In the automotive sector, the US is pushing to tighten rules of origin to block the indirect use of manufacturing components sourced from outside North America, particularly China, seeking to raise the required share of US-made content in vehicles.

While the USMCA allows most food products to move duty-free, dairy remains an exception between the US and Canada. Ottawa caps the volume of American milk, eggs and poultry that can enter duty-free, while Washington maintains its own protections against Canadian dairy imports. The Canadian system has long drawn complaints from US farmers and lawmakers, and criticism from Trump, though it remains shielded by the political weight of Quebec's dairy sector.

Former Canadian and Mexican diplomats voiced cautious optimism that a new agreement would eventually emerge, according to comments made during a discussion with David Westin on Bloomberg's Wall Street Week programme.

Instead of renewing the deal on July 1, the Trump administration announced it will begin a decade of negotiations on amendments to it.

For now, the USMCA continues to shield most Mexican and Canadian goods from the broad import tariffs Trump has imposed on nearly all other US trading partners.

US refuses to extend North America trade pact in current form

AFP
July 1, 2026

The United States says it is not renewing the US-Mexico-Canada free trade agreement in its current form for 16 years, noting more talks are needed – Copyright AFP/File Guillermo Arias

The United States will not renew a North American trade pact with Canada and Mexico in its current state, the US trade envoy said Wednesday, meaning the deal will now be reviewed annually.

The move is likely to fuel uncertainty for businesses in North America, given deep integration across supply chains in sectors like automobiles.

But the US-Mexico-Canada Agreement (USMCA) remains in force for another 10 years even if not renewed by Wednesday’s deadline.

The free trade pact will instead be subject to annual reviews, unless a country decides to withdraw entirely.

“The United States did not agree to renew the USMCA in its current form. As a result, the USMCA is not renewed,” US Trade Representative Jamieson Greer said in a statement.

“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 added.

A senior US official told reporters Wednesday that US trade gaps were a key concern, alongside market access opportunities in Canada and Mexico. The official flagged tensions in areas like dairy and corn.

Mexico’s economy secretary, Marcelo Ebrard, confirmed the impasse.

On Wednesday, the USTR held a virtual meeting with Ebrard and Ottawa’s minister in charge of Canada-US trade, Dominic LeBlanc.

The Trump administration’s decision not to extend the pact was widely expected.

President Donald Trump said in June that he was not “looking to renew” the agreement despite signing and praising it in his first term.

Canada and Mexico had both called for a 16-year renewal of the USMCA.

With the deal being subject to rolling negotiations instead of a longer term extension, talks could last for months or years over everything from tariffs to trade rules governing specific sectors.



– Ticking clock –



Despite a 10-year countdown to the deal’s expiration, the senior US official said countries need not wait a decade to conclude their agreement.

“I think we need to come to a conclusion quickly, if possible,” the official added.

Analysts say the development does not change day-to-day trade between the countries for now.

But Scott Lincicome of the libertarian Cato Institute told AFP that uncertainty could dampen business investment.

Still, he expects the USMCA to survive, with goods and services trade within North America amounting to nearly $2 trillion in 2024.

Even as Trump unleashed tariffs on virtually all trading partners in his second presidency, he made critical exemptions for USMCA products.

American Automotive Policy Council president Matt Blunt stressed Wednesday that “North American economic integration enables enormous competitive benefits for the region.”

But Brian Bryant of the International Association of Machinists and Aerospace Workers union said the USMCA “should not simply be extended as-is.”

He urged for tougher labor standards and “meaningful measures that discourage corporations from moving jobs out of the United States and Canada in pursuit of cheaper labor.”

The United States and Mexico have held two rounds of bilateral trade talks and are due to hold a third in the week of July 20.

Mexico has been seeking to reduce US tariffs on steel, aluminum and autos after Trump slapped sharp duties on steel, aluminum and copper imports.

While Greer did not unveil a schedule for formal talks with Canada, he has met with LeBlanc.

The USMCA was implemented in 2020, replacing NAFTA, the North American Free Trade Agreement that took effect in 1994.

It helped lower or remove tariffs and other trade barriers on many products traded between the three nations.