Tourists from Chattanooga are checking into resorts in Cancun. Canadian auto parts are supplying factories in the central north of the United States, and vice versa. Happy hour enthusiasts raise glasses of Mexican tequila and mezcal in Seattle’s bars. All of this contributes to the vast trade landscape where the United States exchanges goods and services worth $1.9 trillion annually, equaling $5 billion per day, with its neighbors, Canada and Mexico. They have overtaken China as the two top trading partners of the United States.
The stakes are high when it comes to tweaking the rules governing trade among these three countries. After a year filled with chaotic tariff policies from former U.S. President Donald Trump, many companies across the U.S., Canada, and Mexico would welcome a return to stability in North America. However, achieving this seems unlikely.
The regional trade pact known as the United States-Mexico-Canada Agreement (USMCA) or T-MEC in Spanish, negotiated by Trump and touted during his first term, faces its review deadline this Wednesday, a process anticipated to last months or even longer. The future path is fraught with potential obstacles.
“There will be a lot of drama this summer,” said Diego Marroquín Bitar, a researcher at the Center for Strategic and International Studies, during a forum on the USMCA sponsored by the Cato Institute.
From the United States comes proposed requirements that effectively compel Canada and Mexico to concede some automobile production to the United States. While this might bring more jobs to U.S. automotive plants, it would disrupt existing supply chains and elevate new car prices in the U.S., currently averaging near $50,000, while U.S. consumers are already frustrated with high living costs.
Trump, as usual, increased tensions by threatening to withdraw from his own agreement. In 2020, the USMCA replaced the 1994 North American Free Trade Agreement (NAFTA), which dismantled most trade barriers among the three North American countries. Trump and other critics labeled NAFTA as a job killer, as it encouraged U.S. firms to relocate factories south of the border for cheaper Mexican labor before sending goods back to the U.S. without tariffs.
His USMCA turned out similar to NAFTA, yet pushed factories to offer higher wages and ensured more production originated in North America to prevent Chinese products from slipping through regional borders tariff-free. The North American trade agreement undergoes review every six years, as stipulated by the USMCA.
This Wednesday marks the deadline for the USMCA renewal, though “nothing will happen on July 1,” Oscar Ocampo, director of economic development at the Mexican Institute of Competitiveness, noted. Negotiators may agree on Wednesday to renew the USMCA as it stands for another 16 years, despite this being considered unlikely. Instead, they are expected to continue working on improvements. They have until 2036 to reach an agreement, or the pact will expire.
Meanwhile, any country within the USMCA can opt out with six months’ notice to its partners, a scenario Canada and Mexico fear Trump might activate. After all, Trump declared in June he does “not seek to renew” the trade agreement with Canada and Mexico, stating “we don’t need anything they have.” Ocampo suspects Trump’s aim is not to abandon the treaty but to use uncertainty to push Mexico on security and immigration concerns.
The U.S. and Mexico have held discussions on renewing the trade agreement, while Canada remains sidelined. “The danger for Canada is this: the United States and Mexican governments reach an agreement on core treaty changes and present them in Ottawa as a ‘take it or leave it’ scenario,” warned Patrick Childress, a partner at Holland & Knight and former U.S. trade negotiator.
Canadian Prime Minister Mark Carney said the three trading partners plan to meet virtually Wednesday, adding, “I’m not looking for my pen.” Carney later communicated in French that his priority is updating the USMCA.
The United States aims for a revised trade agreement ensuring Chinese goods don’t enter through loopholes, but the most contentious issue is the push for manufacturing more goods in North America, specifically within the United States. The USMCA requirement states automotive products must be 75% North American-made – raised from 62.5% under NAFTA – to qualify for tariff-free treatment.
The United States wants to increase the 75% threshold further, but achieving this won’t be simple. Automakers have spent years fine-tuning supply chains to meet the 75% mark, Childress explained. They would need time to comply with a higher standard.
The United States also proposes a new requirement – that 50% of cars be manufactured in the United States, confirmed Carney earlier in June. Currently, none of the USMCA countries have guaranteed production quotas. “It’s a red line for both Mexico and Canada, violating the spirit and letter of regional integration,” Ocampo asserted.
Marcos Carias, an economist at the credit insurer Coface, noted presently only one in five Mexican and Canadian cars imported to the United States would meet the 50% standard. Vehicle models likely facing increased costs under the plan include Ford’s compact Maverick pickup, Chevrolet’s midsize Equinox SUV, and certain Nissan sedans, all manufactured in Mexico. Carias’s rough estimates suggest prices could rise between 5% and 7% for the most affected models.
Businesses crave stability. Many companies yearn for relief from Trump’s fluctuating tariffs. “My interest in this USMCA renewal is simply consistency,” remarked Shawn Miller, co-founder of PKGD Group, which imports agave-based drinks (tequila, mezcal, and raicilla) from family-run Mexican producers. “If the rules change, they change. But we would really like to know what they will be and want them to stay that way for a while.”
Business is thriving for PKGD. Sales at the Holland, Michigan-based firm rose 62% this year, following a 100% increase in 2025 and a 300% increase in 2024. However, last year was tumultuous.
Trump imposed a 25% import tax on Mexican and Canadian goods in February, then reversed course a month later, exempting products eligible for USMCA’s preferential treatment. The treaty allows Mexican beverages to enter the United States tariff-free.
Amid the turmoil, three truck shipments of Mexican beverages imported by PKGD crossed the U.S. border, incurring the 25% tariff, totaling $105,000. Unsure of future tariffs Trump might devise, PKGD met with its Mexican producers to strategize a response. “What can we absorb? What can they absorb?” Miller considered.
Miller emphasized that he and his Mexican suppliers “aren’t large multinational corporations with dedicated trade departments, legal teams, or lobbyists focused on trade policy.”
The article was contributed to by AP journalists Maria Verza in Mexico City and Rob Gilles in Toronto.