US Refuses to Renew USMCA, Plunging $2 Trillion North American Trade Pact into Uncertainty

The United States Trade Representative's office confirmed on July 1st that the United States did not agree to renew the USMCA in its current form following the agreement's mandatory first joint review — a decision that immediately cast a shadow over nearly two trillion dollars in annual trilateral trade. In a statement, Ambassador Greer confirmed that the three parties met virtually on the review date and that while the agreement remains in force pending resolution of outstanding issues, the US would continue to engage with Mexico and Canada to address what it described as the pact's shortcomings and its trade deficits with both neighbours. A third round of bilateral negotiations with Mexico has been scheduled for the week of July 20th, with Canada-US engagement lagging considerably behind.

The decision, while not entirely surprising to markets, crystallises what the Centre for Strategic and International Studies described as a shift from a routine assessment to a high-stakes negotiation. The Trump administration has signalled its intent to seek additional concessions from Mexico and Canada on longstanding trade disputes while also leveraging the review to address non-trade issues including migration, drug trafficking, and continental defence commitments. The USMCA, which replaced NAFTA in July 2020 and governs commerce across the continent under its 34 chapters, contains a sunset mechanism requiring all three parties to formally confirm renewal or face a cascade of annual reviews stretching to its automatic expiry in 2036.

The Centre for Strategic and International Studies, tracking six plausible scenarios for the pact's fate, now identifies a protracted extension as the base case — a drawn-out negotiation stretching into late 2026 or beyond, focused heavily on automotive rules of origin, energy market access, disciplines on Chinese inputs into North American supply chains, and enforcement architecture. A second plausible scenario involves the agreement entering serial annual reviews without a formal deal, keeping businesses and investors in a sustained state of uncertainty across sectors including automotive manufacturing, electronics, and agriculture. Formal negotiation rounds are already underway: a first US-Mexico bilateral concluded in late May covered automotive rules of origin and steel and aluminium trade, with Canada largely sidelined from those early sessions.

For businesses operating across North American supply chains, the immediate practical impact is one of enforced caution rather than immediate disruption. The USMCA remains in force, and Deloitte's latest global economic outlook judged that tariff exemptions afforded by the agreement would likely remain intact through the review period. However, KPMG's trade outlook noted that the desire for deglobalisation has bumped up against national security imperatives, particularly around AI-related supply chains. The majority of AI data centre inputs — including advanced chips — are produced outside the US, and tariffing them risks stalling the very technology buildout Washington views as both an economic and military priority. That tension is unlikely to be resolved within the USMCA framework alone.

The geopolitical context further complicates the outlook. Court setbacks for the administration's reliance on the International Emergency Economic Powers Act as the legal basis for sweeping tariffs have modestly but meaningfully reduced the credibility of rapid unilateral tariff threats — potentially pushing Washington to treat the USMCA review as the primary venue to extract concessions it can no longer reliably secure through executive action alone. For President Claudia Sheinbaum in Mexico City and Prime Minister Mark Carney in Ottawa, engaging in substantive negotiations while simultaneously being subject to national security tariffs and Section 301 investigations creates a politically and diplomatically toxic environment. CSIS analysts have noted that how the three nations navigate this moment will shape the region's economic architecture for decades — a warning that has now moved from analytical forecast to live geopolitical reality.