The USMCA review will signal Trump’s upcoming global tariff strategy

THE US will be celebrating its 250th year of independence on Saturday (Jul 4). Much attention of domestic – and global – policymakers and industry leaders, however, will be directed at the Jul 1 deadline for the review of the United States-Mexico-Canada Agreement (USMCA).

The USMCA is, in effect, version two of the North American Free Trade Agreement (Nafta), which took effect in 1994. Since the USMCA was implemented in July 2020, during US President Donald Trump’s first term, it has served as a political cornerstone of economic relations between the US, Mexico and Canada. 

At the time of the USMCA’s signing in 2018, Trump described it as a “wonderful new trade deal”. But the US president has recently declared that he thinks the agreement is not working and should be scrapped.

Amid the political bluster from Trump, what is clear is that the nominal Jul 1 deadline could pass without any deal. Yet, that does not mean the agreement will inevitably collapse. It could be renewed in largely unchanged terms after months of negotiation, or it could resurface in another form.

The real takeaway of the USMCA will be insight into Trump’s current stance on international economic diplomacy.

Dissatisfaction with the trade deal

It is clear that the White House diverges from the positions of Canada and Mexico regarding the deal, both of which favour renewal under largely existing terms for 16 more years.

By contrast, US Commerce Secretary Howard Lutnick has argued that the administration considers the USMCA “to be a poor deal that needs to be reimagined”.

This is far from an isolated view in the administration. US Trade Representative Jamieson Greer, referring to the USMCA, said in 2025 that the country’s “baseline is that things have to be changed”.

Greer said that he wants structural changes to USMCA to apply to all three countries, including to de-risk from China.

These include more alignment on external tariffs, stronger screening of inbound investment and export controls, stronger security cooperation, and tighter rules of origin, which define how much of a product must be made in North America to trade duty-free.

For example, the Trump team has alleged the prevalent use of third-country content, including from China, in Mexican-manufactured goods. Hence, despite Mexican tariffs on China, some Trump officials see Mexico as a “back door” for China to enter US markets at lower tariffs.

Greer has also said that the final deal could result in separate arrangements with Canada and Mexico to maximise US leverage, building on the existing trilateral agreement.

Trump has not sought to revive the Trade Promotion Authority law – which allows the president to negotiate trade deals directly – so he may use side letters, backed by US executive actions, to achieve his goals.

What the negotiations might look like

There are multiple pathways for the USMCA to take after Jul 1. 

Many market participants are pricing in a challenging negotiation process, which could last weeks or months, for the trade deal. That could result in more significant changes to the USMCA, such as Mexico and Canada making concessions to the US to reduce tariff exposure and extend the agreement.

Other scenarios are possible, too.

One, which is growing in likelihood, is an annual USMCA review which dials up political uncertainty and may discourage longer-term investment in North America.

As Greer suggested, there is also a possibility of moving from a trilateral USMCA towards bilateral deals that the US might strike with Canada and Mexico separately. This scenario would retain some market access for the three countries, but hamper the development of supply chains across the whole of the North American continent.

Trump’s rhetoric, which may largely be a negotiation tactic, also points to the possibility of the US or one or more USMCA partners seeking “early withdrawal” from the deal.

It is unlikely that Mexico or Canada would be the first movers of such an agenda, despite Trump’s attacks on both Nafta and the USMCA over the last decade, damaging much goodwill with Ottawa and Mexico City.

Part of the reason why there is still genuine uncertainty over the USMCA is that negotiations risk getting intertwined with Trump’s wider geoeconomic agenda.

On Jul 24, the global 10 per cent tariff Trump imposed earlier this year under Section 122 is scheduled to expire, unless Congress unexpectedly decides to renew it.

At the same time, the Trump team is moving to conclude its Section 301 trade practice probes of countries that allegedly have excess manufacturing capacity, leading to “persistent trade surpluses” with the US.

These could lead to new US tariffs. They would take effect not just on Mexico and Canada, but also a much wider group of nations, including those in Asean, which are parties in the investigation.  

This probe follows another, which looked into the use of forced labour practices by 60 countries, including China, Singapore and Vietnam.

The investigation found all under investigation to have violated US laws. As a result, Greer has recommended new tariffs, ranging from 10 to 12.5 per cent, to be imposed in the coming weeks.  

The way that both the USMCA negotiations and tariff implementations proceed will illuminate how Trump wants to proceed with his global trade agenda.

Analysts are mostly betting that Trump will raise more barriers, which would make renewing the USMCA – and lowering tariffs – even more challenging for the US’ trade partners.

The writer is an associate at LSE IDEAS at the London School of Economics