USMCA at the Crossroads: Successes, Challenges, and the 2026 Review

Category: News | Sub-Category: Business & Economy
Posted: June 1, 2025

The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in July 2020, has reshaped trade across North America. As we approach the critical 2026 review, mandated by the agreement’s Article 34, the USMCA faces a pivotal moment. This review could lead to minor tweaks, significant renegotiations, or even the agreement’s expiration in 2036 if not renewed. With trade balances shifting, industries like automotive and agriculture evolving, and labor and environmental provisions under scrutiny, the stakes are high. Let’s dive into the USMCA’s current status, its wins and pain points, and what’s on the horizon for 2026.

A Snapshot of the USMCA’s Impact

The USMCA modernized NAFTA by addressing digital trade, intellectual property, and labor and environmental standards while preserving tariff-free trade across the U.S., Mexico, and Canada. Since its implementation, North American trade has surged. In 2022, U.S. goods exports to USMCA partners reached $680.8 billion, up 16% from 2021, while imports hit $891.3 billion, a 20.5% increase. Total trade among the three nations reached $1.88 trillion in 2023, a 50% jump since 2020. Mexico and Canada have overtaken China as the U.S.’s top trading partners, a testament to the agreement’s role in strengthening regional ties.

Yet, the U.S. trade deficit with USMCA partners grew to $210.6 billion in 2022, up 37.5% from 2021, raising concerns about economic imbalances. Political shifts, including the 2025 U.S. election and Canada’s upcoming federal election, add complexity to the 2026 review. Recent posts on X indicate Mexico is pushing for an early review to reduce uncertainty, with Economy Minister Raquel Buenrostro eyeing September or October 2025 for discussions.

Successes: Driving Trade and Investment

The USMCA has delivered measurable gains. It has fueled economic integration, with foreign direct investment (FDI) booming. U.S. FDI in Canada and Mexico reached $569 billion in 2022, up 9.5% from 2021, while their FDI in the U.S. hit $623.1 billion, an 8% increase. The agreement’s stability has reassured investors, reducing the uncertainty that plagued NAFTA’s final years.

Automotive Industry

The automotive sector, a cornerstone of North American trade, has thrived under USMCA’s stricter rules of origin, requiring 75% of a vehicle’s value to originate in the region (up from NAFTA’s 62.5%). Additionally, 40-45% of auto content must come from facilities paying workers at least $16 per hour, boosting wages, particularly in Mexico. In 2023, North America produced over 16 million vehicles, with Mexico’s share at 24.8% and the U.S. at 65.6%. Mexico’s auto sector has become the world’s seventh-largest, driven by USMCA incentives and geopolitical shifts favoring “near-shoring” over reliance on China.

Agriculture

Agriculture has also benefited. U.S. farm exports hit a record $164 billion in 2021, with Canada and Mexico as key markets. The USMCA opened Canada’s dairy market to U.S. farmers, granting tariff-free access to 3.6% of the $15.2 billion market, up from 3.25% under the Trans-Pacific Partnership. Mexico preserved access for its winter fruits and vegetables, while new provisions on biotechnology and geographical indicators have supported innovation and fair trade practices.

Labor and Environmental Provisions

The USMCA’s labor chapter, particularly the Rapid Response Labor Mechanism (RRM), is a standout. Thirteen labor complaints have been filed, with eight leading to improved wages and conditions in Mexican factories, especially in the auto sector. Mexico’s 2019 labor reforms, spurred by USMCA, have empowered workers to form independent unions and engage in collective bargaining.

Environmentally, the USMCA’s Chapter 24 commits all three nations to enforce seven multilateral environmental agreements, addressing issues like illegal logging, fisheries, and air quality. The Interagency Environment Committee for Monitoring and Enforcement ensures compliance, while the Customs Verification Agreement enhances cooperation on wildlife and timber trade. These provisions mark a significant upgrade from NAFTA’s side agreements.

Challenges: Disputes and Imbalances

Despite its successes, the USMCA faces hurdles. The growing U.S. trade deficit has fueled criticism, particularly from those who argue the agreement hasn’t delivered enough for American manufacturing. The Peterson Institute notes that during NAFTA’s era, the U.S. auto sector lost 350,000 jobs, while Mexico gained over 400,000. Political rhetoric, especially from the incoming Trump administration, suggests a push for renegotiation to address these imbalances.

Dispute Resolution Struggles

Dispute resolution remains a sore point. The USMCA retained NAFTA’s state-to-state dispute mechanisms but introduced the RRM for labor issues. However, unresolved disputes, particularly in energy and agriculture, have strained relations. The U.S. and Canada have challenged Mexico’s nationalist energy policies, which favor state-owned enterprises and limit U.S. exports. A 2022 dispute panel ruled against the U.S. on automotive rules of origin, prompting calls from former USTR Robert Lighthizer to renegotiate the auto text. Mexico has also invoked disputes over U.S. corn exports, citing biotechnology and sanitary concerns.

Sector-Specific Issues

In agriculture, Canada’s dairy supply management system and Mexico’s restrictions on U.S. genetically modified corn remain contentious. The U.S. has initiated dispute settlement consultations over Canada’s dairy tariff-rate quota allocations. In the automotive sector, compliance with the stricter rules of origin has increased administrative burdens, particularly for smaller firms. Mexico’s protectionist policies, like restricting U.S. trucks, have also sparked tensions.

Political and Economic Uncertainty

The 2026 review coincides with political transitions. Mexico’s new president, Claudia Sheinbaum, may adjust priorities, though her stance remains unclear. Canada’s 2025 election could shift its approach, though all major parties support the USMCA. In the U.S., President-elect Trump has signaled intent to invoke the six-year renegotiation clause, potentially targeting automotive rules, forced labor provisions, and measures to curb Chinese influence in North America. His recent 25% tariff on Canadian and Mexican imports, citing immigration and drug concerns, has escalated tensions, risking a trade war.

The 2026 Review: What’s at Stake?

The 2026 review, set for July, will determine whether the USMCA is extended for another 16 years or faces annual reviews until its potential termination in 2036. If any party fails to confirm renewal, uncertainty could deter investment and disrupt supply chains. The review’s scope is undefined, ranging from minor adjustments to full renegotiation. Potential focus areas include:

• Automotive Rules: Tightening rules of origin further or addressing electric vehicle (EV) production, especially to counter Chinese manufacturers in Mexico.

• Digital Trade: Expanding provisions to cover emerging technologies like AI.

• Labor and Environment: Strengthening enforcement of labor rights and environmental protections, including anti-forced labor measures.

• Supply Chain Resilience: New mechanisms to address disruptions and promote near-shoring.

• Dispute Resolution: Resolving ongoing disputes, like those over energy and dairy, without undermining the agreement’s credibility.

Canada and Mexico favor maintaining the status quo to preserve market access, while the U.S. may push for changes to reduce the trade deficit and protect domestic industries. Balancing these priorities without derailing economic cooperation will be key.

Looking Ahead

The USMCA has solidified North America as a competitive trade bloc, but its future hinges on the 2026 review. Stakeholders must prepare now, engaging businesses, labor groups, and policymakers to define priorities. Canada has already begun public consultations, and Mexico is advocating for an early review to stabilize investment. The U.S. must clarify its objectives to avoid prolonged disputes that could erode investor confidence.

As North America navigates geopolitical shifts, including tensions with China and the push for supply chain resilience, the USMCA remains a vital tool. By addressing challenges head-on and building on successes, the three nations can strengthen their economic partnership for decades to come.

Thought Questions

1. How can the U.S., Canada, and Mexico balance their competing priorities during the 2026 USMCA review without jeopardling a trade war?

2. What new provisions, such as those for AI or clean energy, should be prioritized to keep the USMCA relevant in a rapidly changing global economy?

3. How can the USMCA’s dispute resolution mechanisms be improved to address ongoing issues like energy and agriculture without undermining the agreement’s stability?

Sources: Information compiled from web resources and posts on X, including White & Case LLP, Brookings Institution, USTR, and USDA Foreign Agricultural Service.