Trump Refuses USMCA Extension... North American Supply Chain Shifts to "Permanent Negotiation" System

Agreement Maintained, to Undergo Annual Review for 10 Years
Key Issue: Checking China's Influence and Preventing Indirect Integration

The Trump Administration has decided not to extend the United States-Mexico-Canada Agreement (USMCA), a North American trade pact signed with Canada and Mexico, for the long term. Instead, the agreement will transition to a "rolling review" system, in which its implementation will be checked annually. As a result, uncertainty is expected to grow for automotive, agricultural, retail, and energy companies that have relied on the North American supply chain for production.

U.S. Trade Representative. U.S. Trade Representative Official Website.

Jamieson Greer, U.S. Trade Representative, told Bloomberg News on the 1st (local time) that the Trump Administration is not ready to approve the USMCA as it stands, stating, "We see significant issues."

The USMCA is a trade agreement that replaced the former North American Free Trade Agreement (NAFTA) and took effect in 2020, involving the United States, Canada, and Mexico. President Trump strongly pushed for this agreement during his first term. However, during his second term, he has become increasingly dissatisfied, arguing that the USMCA grants tariff exemptions to a significant number of products from Mexico and Canada, thereby limiting his tariff policies and failing to adequately resolve the U.S. trade deficits with Mexico and Canada.

Originally, on this day, which marks the sixth anniversary of the USMCA's entry into force, the three countries could have opted to extend the agreement for another 16 years. However, with the United States refusing a long-term extension, the agreement will be maintained for now, but its structure will change to one in which negotiations and reviews occur annually for the next 10 years. If the three countries fail to reach an agreement during this period, the USMCA will expire in 2036.

By choosing annual negotiations over a long-term extension, the United States is making it more difficult for companies to make investment decisions. Bloomberg Economics analyzed that the United States could use the "implicit threat" of effectively doubling tariffs on Mexico and Canada as a bargaining chip in negotiations. Due to last year's tariff increases by the Trump Administration, there has been a greater incentive to report compliance with USMCA requirements, resulting in about 90% of imports from Canada and Mexico currently being recorded as USMCA-eligible items.

The United States has already been conducting official negotiations with Mexico, but has been relatively passive in talks with Canada. The U.S. and Mexican negotiating teams are scheduled to discuss rules of origin for industrial goods other than automobiles at the third weekly negotiation on the 20th. According to a senior U.S. government official, issues such as aerospace, intellectual property (IP), and water quality may also be on the agenda.

The Core Issue: Containing China... Strong Industry Backlash

The core issue is containing China. The United States is wary of Chinese parts or investments entering the North American supply chain indirectly via Mexico and Canada. In particular, as Chinese automakers expand their market share outside the United States, the U.S. is seeking to tighten automotive rules of origin and strengthen requirements for the use of U.S.-made parts.

Greer also commented on Canada, saying, "One day they say they'll help with U.S. reindustrialization, the next day they're looking to attract Chinese investment," and added, "We're getting mixed signals from Canada."

Industry groups are strongly pushing back. Major business organizations, including the U.S. Chamber of Commerce and Business Roundtable, have called for the maintenance and strengthening of the USMCA. The automotive industry has demanded that the leaders of the three countries swiftly agree to extend the agreement. In a joint statement, automakers such as General Motors (GM) and Toyota, along with parts suppliers and dealer associations, said the USMCA has supported automotive production investment and manufacturing jobs in the United States, emphasizing, "An extension agreement should be reached that preserves the existing trilateral cooperation framework."

The retail sector also expressed concerns over rising uncertainty. The Retail Industry Leaders Association (RILA), whose members include The Home Depot and Target, stated that the USMCA serves as the foundation for supply chain planning and North American investment, adding that tariff benefits must be maintained and uncertainty during the review period should be minimized.

In contrast, labor groups believe this review should be used as an opportunity to improve the agreement. The International Association of Machinists and Aerospace Workers argued that labor standards and enforcement should be strengthened, and rules of origin improved, stating that the agreement should be revised to prevent companies from relocating jobs outside the United States and Canada in pursuit of low-wage labor.

This content was produced with the assistance of AI translation services.