The U.S. has decided not to extend a key trade pact with Canada and Mexico, according to the Office of the United States Trade Representative.
July 1 was the deadline for the three countries to decide whether to extend the United States-Mexico-Canada Agreement, or USMCA, until 2042. The Trump administration's decision means the USMCA remains in effect and subject to annual reviews for 10 years, until it expires in 2036, unless another agreement is reached to extend it.
"The United States will continue to engage with Mexico and Canada to address the agreement's shortcomings and our trade deficits with these countries," U.S. Trade Representative Jamieson Greer said in a statement. "However, the agreement remains in force pending resolution of these issues or until the agreement's termination."
Focus on the U.S. trade deficit
President Trump signed the USMCA into law in 2020, replacing the 1994 North American Free Trade Agreement.
The USMCA lowered trade barriers among the U.S., Mexico and Canada, aiming to create jobs for American workers and energize the country's manufacturing sector. Among other changes, the deal tightened rules for the auto industry, requiring that 75% of each vehicle be produced in North America to avoid any import duties.
At an event in Michigan in 2020, Mr. Trump described the pact as the "fairest, most balanced and beneficial trade agreement we have ever signed into law." But he has since soured on the deal. Speaking to reporters in June, Mr. Trump said the U.S. would "do better as a country" without the agreement.
The USMCA has failed to ease the U.S. trade deficit with Canada and Mexico, a senior Trump administration official told reporters. "We believe that the USMCA does not operate to control the deficit like the president intended," the person said.
The Office of the U.S. Trade Representative said the U.S. is scheduled to meet with Mexico the week of July 20 for another round of bilateral negotiations. During those talks, the two countries will discuss rules of origin, intellectual property and concerns surrounding Mexico's compliance with labor obligations, the senior administration official said.
The official did not discuss specific plans to meet with Canada, but said, "We will continue our discussions with our Canadian partners."
Talks could take years
The Trump administration could decide to withdraw from the USMCA altogether before it expires in 10 years, though that decision will likely depend on how negotiations unfold. Those talks could drag on for years, according to trade experts.
The senior administration official expressed interest in resolving the major sticking points of the trade deal quickly, adding that Mr. Trump could reach an agreement with Mexico and Canada to alter their trade pact before his term expires in 2028.
"The president remains skeptical of this, but I think it's in the interest of our country to keep negotiating," the person added.
The impact of a U.S. withdrawal from the USMCA would depend on whether any bilateral trade agreements replaced the pact, according to trade experts.
"Absent bilateral deals, growth would slow in both Canada and Mexico as the tariff exemption, which has kept both countries' external sectors afloat over the past year, was removed," economists with investment advisory firm Capital Economics said in a report.
"But given the average tariff rate would only rise to 10%, rather than the much higher rates previously threatened under IEEPA, recessions could be avoided," they added, referring to the International Emergency Economic Powers Act.
Edited by Alain Sherter
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