The United States, Canada and Mexico begin negotiations to renew the trade agreement

WASHINGTON (AP) — Chattanooga tourists check into Cancun resorts. Canadian auto parts supply factories in the American Midwest – and vice versa. Happy hour revelers raise glasses of tequila and Mexican mezcal at Seattle bars.

It adds up. The United States trades $1.9 trillion a year, or $5 billion a day, in goods and services with its neighbors, Canada and Mexico. They have supplanted China to become the United States’ two largest trading partners.

The stakes are therefore high when it comes to changing the rules that govern trade between the three countries. And after a year of President Donald Trump’s chaotic tariff policies, many U.S., Canadian and Mexican businesses would welcome the return of stability to North America.

They are unlikely to get it.

The regional trade deal — the United States-Mexico-Canada Agreement, or USMCA — that Trump negotiated and bragged about during his first term is up for renewal on Wednesday, a process expected to take months or longer.

And the path forward is strewn with landmines.

“There’s going to be a lot of drama this summer,” Diego Marroquín Bitar, a fellow in the Center for Strategic and International Studies’ U.S. program, said last week at a USMCA forum sponsored by the Cato Institute.

A path strewn with pitfalls for North American trade

The United States is making demands that could effectively force Canada and Mexico to cede some of their auto production to the United States. This could create more jobs in U.S. auto factories. But it would also upend established supply chains and drive up prices for new cars in the United States, which currently average nearly $50,000, at a time when American consumers are already frustrated by the high cost of living.

Trump, characteristically, added to the tension by threatening to withdraw from his own deal altogether.

In 2020, the USMCA replaced the 1994 North American Free Trade Agreement, which removed most trade barriers between the three North American countries.

Trump and other critics had called NAFTA a job killer because it encouraged U.S. companies to move their factories south of the border to take advantage of low-wage Mexican labor, then send their goods back to the United States duty-free.

His USMCA ultimately proved similar to NAFTA, although it required factories to pay higher wages and ensure that more of what they made came from North America, in an effort to prevent Chinese goods from crossing regional borders duty-free.

North American trade deal must be renewed

The USMCA included a new provision requiring the pact to be renewed every six years. That deadline is Wednesday, but “nothing will happen on July 1,” said Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness.

Negotiators could agree on Wednesday to renew the USMCA as is for another 16 years, or until 2042. But this is considered highly unlikely. Instead, they are expected to continue working on ways to improve it; they have until the end of the current term, in 2036, to reach an agreement. Otherwise, the pact expires.

Meanwhile, any USMCA country can withdraw from the deal as long as it gives six months’ notice to its two partners — a wake-up call that Canada and Mexico, dependent on trade with the United States, fear Trump will push.

After all, Trump said in June that he was “not looking to renew” the trade deal with Canada and Mexico: “We don’t need anything they have,” he said.

Ocampo suspects Trump doesn’t really want to abandon the treaty; he simply wants to take advantage of the uncertainty to maintain pressure on Mexico on security and immigration issues.

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Canada is in the cold – so far

The United States and Mexico have held discussions on renewing the trade agreement. But Canada has so far stayed away.

Patrick Childress, a partner at the law firm Holland & Knight and a former U.S. trade negotiator, said: “The danger for Canada is this: that the U.S. government and the Mexican government come to an agreement on changes to the basic provisions of the treaty and then show up in Ottawa and say, ‘Here’s what we agreed to. You can take it or leave it.’

Canadian Prime Minister Mark Carney said the three trading partners planned to meet virtually on Wednesday, adding: “I’m not looking for my pen.”

Carney later said in French that his priority was to update the USMCA and that it was impossible for the United States to reach a new agreement without congressional approval.

Push production to the United States

The United States wants a renewed trade deal to do more to ensure Chinese goods don’t enter through the back door. But the most controversial issue is the United States’ desire to require more products to be made in North America – and specifically in the United States.

USMCA required that 75% of automotive products be manufactured in North America – compared to 62.5% under NAFTA – to qualify for duty-free treatment.

The United States wants to push the 75% threshold even higher, but it won’t be easy. Automakers “have already been fine-tuning their supply chains for years to be able to hit that 75% mark,” Childress said. It would take time for them to meet the highest standards.

The United States is also seeking to impose a completely new requirement: that 50% of cars be made in the United States, Carney confirmed in early June. Currently, none of the USMCA member countries enjoy a guaranteed share of production. “This is a red line for Mexico and Canada, and it goes against the spirit and letter of regional integration,” Ocampo said.

Marcos Carias, an economist at credit insurer Coface, said only one in five Mexican or Canadian cars imported into the United States would currently meet the 50% standard.

Vehicle models likely to be hit with higher costs under the plan, he said, include Ford’s Maverick compact pickup truck, Chevrolet’s mid-size Equinox SUV and some Nissan sedans, all made in Mexico. Carias’ back-of-the-envelope calculations suggest prices could increase by 5-7% on the most affected models.

Businesses want stability

Many businesses simply want relief from Trump’s ever-changing tariffs. “My interest in this renewal of the USMCA is simply consistency, right? said Shawn Miller, co-founder of PKGD Group, which imports agave spirits (tequila, mezcal and raicilla) from family growers in Mexico. “If the rules change, the rules change. But we’d really like to know (what they’re going to be) and we’d like them to stay that way for a while.”

Business is booming for PKGD. Sales at the Holland, Michigan-based company have increased 62% so far this year after jumping 100% in 2025 and 300% in 2024.

But the last year has been chaotic.

Trump imposed a 25% import tax on Mexican and Canadian goods in February, only to reverse course a month later and exempt products eligible for USMCA preferential treatment. The USMCA allows Mexican spirits to enter the United States duty-free.

Amid the uproar, three truckloads of Mexican spirits imported by PKGD crossed the U.S. border and were hit with the 25% tariff. The cost came to $105,000. “For us, it was an unfortunate day!” Miller said.

Not knowing what tariffs Trump might bring up next, PKGD met with its Mexican producers to find an answer. “What can we absorb? What can they absorb?” » Miller said. “How can we mitigate this? »

Miller said he and his Mexican suppliers “are not large multinational corporations with dedicated sales departments, teams of lawyers or lobbyists focused on trade policy.”

Kerry Mellin can sympathize.

In 2014, the veteran Hollywood costume designer started a business in Ventura County, Calif., selling silicone grips that allow people with disabilities (such as cerebral palsy and Parkinson’s disease) to hold objects: spoons, cups, pens, toothbrushes.

But sales failed when she introduced her EazyHold grips to Canada, where she has dual citizenship. She believes this is because the silicone she imports from Asia prevents her from having enough North American content to qualify for USMCA duty-free treatment when crossing the border from the United States.

Mellin suspects EazyHold could meet USMCA standards, “but the rules are complex and unpredictable enough that I really can’t be sure without hiring a commercial lawyer.”

Mellin believes that USMCA rules of origin should be relaxed, not tightened, to help small businesses that cannot afford more expensive raw materials from North America.

“I understand why this rule exists: to prevent companies from moving Chinese goods through Mexico,” she said. “I just wish it could tell the difference between this and a small family business in California that makes gripping aids for people who can’t hold a fork. I’m not the problem they were trying to solve.”

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AP writers Maria Verza in Mexico and Rob Gilles in Toronto contributed to this story.

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