USMCA 2026: The Challenges of the Review and the Implications for North America

The USMCA Review: A Crucial Moment for North America

At a time when global attention is focused on geopolitical crises such as the conflict in Iran and tensions in Ukraine, another issue of great significance is emerging in the Western Hemisphere. The United States-Mexico-Canada Agreement (USMCA), also known as T-MEC in Mexico and ACEUM in Canada, is approaching a mandatory joint review that could redefine trade relations among the three North American countries.

The Strategic Importance of USMCA

The USMCA, which came into force in 2020, was negotiated and implemented during the presidency of Donald Trump, who described it as "the best and most important trade agreement ever made by the United States." The agreement provides for a joint review of its performance in 2026 and, if deemed satisfactory, a renewal for another sixteen years until 2042. However, the initial enthusiasm for the USMCA quickly faded. Using the International Emergency Economic Powers Act (IEEPA) and Section 232 on products such as steel, aluminum, and lumber, Trump imposed new tariffs on various Canadian and Mexican products starting in February of last year. The goal was to permanently increase duties on a long list of strategic goods. Many of these tariffs were subsequently reduced, in part due to the Supreme Court's decision on the IEEPA, but the actions nevertheless undermined the sense of North American integration. These measures violated both the spirit and the letter of the USMCA, drawing the attention of Ottawa and Mexico City. Last September, Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum announced their own bilateral strategic partnership, an attempt to protect themselves from an unstable Washington and present a united front in anticipation of the mandatory review.

Tensions Between the United States and Canada

Recent negotiations have revealed deep fractures between the United States and Canada. During the initial USMCA negotiations, negotiations with Mexico were considered more complex. Now, it is Canada that represents the point of greatest friction. The United States trade envoy, Jamieson Greer, told Congress that "there are two countries that have economically retaliated against the United States in the past year: the People's Republic of China and Canada." The United States Deputy Trade Representative, Rick Switzer, added during a CFR event that "we have problems with Mexico that we are still working on, but Mexico intends to reach an agreement with us." He continued saying that "adults are in the room talking because there is an adult in charge there. And I would say there is no adult in charge in Canada." These statements reflect the growing tension between the two countries and highlight the challenges awaiting the USMCA review.

The Political and Economic Impact

Trade has always had a way of influencing domestic politics, but Trump's threats of tariffs against Canada have sparked a new wave of "Canada First" patriotism. Canada, geographically condemned to depend on the U.S. market, cannot completely pivot away from the United States. However, trade and tourism between the two countries are declining, as is goodwill. There have also been reports of boycotts of goods produced in the United States. Last month, Carney stated that "the United States has fundamentally changed its approach to trade, increasing tariffs to levels not seen since the Great Depression. Many of our old strengths, based on our close ties with America, have become our weaknesses, weaknesses that we must correct."

The Opportunities and Challenges of the Review

The USMCA review creates a new opportunity for Trump to pressure the United States' two main trading partners. Despite the Supreme Court's decision on the IEEPA, which has made it more difficult for the president to use tariffs as the primary tool of pressure, there are still several authorities—such as Sections 301, 232, 201, and 338—that allow the president to impose tariffs in response to significant trade issues or national security concerns. The USMCA is consequential for Canada and Mexico, and therefore the review is a unique source of negotiating leverage. The United States could seek to use this leverage to push their neighbors to adopt a common approach to China, such as common external tariffs, export controls, or investment restrictions. Another possibility is that the Trump administration will push its neighbors to shift from a "rules of origin" paradigm—where the decisive factor in determining the treatment of a product is where it is produced—to a "rules of control" paradigm—where the United States could impose bans on products exported by Chinese companies even if these products are manufactured in Mexico or Canada.

Conclusions

At a time when the United States must deal with numerous international and domestic crises, the last thing it needs is a major trade crisis. Ideally, the USMCA will be reviewed quickly and renewed, with modifications kept to a minimum. However, if the past is prologue, it is not certain that one should hold their breath. The USMCA review represents a crucial moment for the future of North American trade. The decisions made in the coming months will have significant repercussions for the economies of the three countries and for their mutual relations.