US, Canada, Mexico begin bumpy negotiations to renew North American
trade pact
[July 01, 2026] By
PAUL WISEMAN
WASHINGTON (AP) — Tourists from Chattanooga check into beach resorts in
Cancun. Canadian auto parts feed factories in the American Midwest – and
vice versa. Happy hour revelers raise glasses of Mexican tequila and
mezcal at bars in Seattle.
It adds up. The United States trades $1.9 trillion a year — $5 billion a
day — worth of goods and services with its neighbors, Canada and Mexico.
They have supplanted China to become America's top two trading partners.
So the stakes are high when it comes to fiddling with 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 across North America.
They are not likely to get it.
The regional trade pact — the U.S.-Mexico-Canada Agreement or USMCA —
that Trump negotiated and boasted about in his first term comes up for
renewal Wednesday, a process that is likely to last months, maybe
longer.
And the path forward is lined with landmines.
"There’s going to be a lot of drama this summer," Diego Marroquín Bitar,
a fellow in the America’s program at the Center for Strategic and
International Studies, said last week at a USMCA forum sponsored by the
Cato Institute.
A bumpy road ahead for North American trade
The U.S. is making demands that could effectively force Canada and
Mexico to surrender some automaking production to the United States.
That might bring more auto factory jobs to the United States. But it
would also upend established supply chains and would push up U.S. prices
for new cars that now average nearly $50,000 at a time when American
consumers are already frustrated about the high cost of living.
Trump, characteristically, has added to the tension by threatening to
pull out of his own agreement altogether.
In 2020, the USMCA replaced the 1994 North American Free Trade
Agreement, which tore down 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 factories south of the border to take
advantage of low-wage Mexican labor, then ship goods back to the United
States duty free.
His USMCA ended up being similar to NAFTA — though it pressured
factories to pay higher wages and make sure that more of what they made
originated in North America in an effort to prevent Chinese products
from slipping across regional borders duty free.
North America trade deal comes up for renewal every six years
The USMCA included a novel provision requiring the pact to be renewed
every six years. That deadline is Wednesday, but "nothing is going to
happen July 1,'' said Oscar Ocampo, director of economic development at
the Mexican Institute for Competitiveness.
Negotiators could agree Wednesday to renew USMCA as it is for another 16
years. But that is considered highly unlikely. Instead, they are
expected to keep working on ways to improve it; they have until 2036 to
reach an agreement — or the pact expires.
Meantime, any USMCA country can pull out of the pact provided it gives
its two partners six months’ notice — a red buzzer that Canada and
Mexico, dependent on trade with the United States, fear Trump just might
push.
Trump, after all, said in June that he was “not looking to renew’’ the
trade pact with Canada and Mexico. "We don’t need anything that they
have,” he said.
Ocampo suspects that Trump doesn't really want to drop the treaty; he
just wants to use the uncertainty to keep pressure on Mexico over
security and immigration issues.
Canada is out in the cold — so far
The United States and Mexico have held talks on renewing the trade
agreement. But Canada has so far been stuck on the sidelines.
Patrick Childress, a partner at the Holland & Knight law firm and a
former U.S. trade negotiator, said: "The danger for Canada is this: that
the U.S. government and the Mexican government reach agreement on
changes to core provisions of the treaty and then show up in Ottawa and
say: ‘Here’s what we’ve agreed to. You can take it or leave it.’’’
Canadian Prime Minister Mark Carney said that the three trading partners
plan to meet virtually on Wednesday, adding: “I’m not looking for my
pen.”
Carney later said in French his priority is to do an update to USMCA and
that it is impossible for the U.S. to have a new agreement without the
approval of Congress.
Pushing production to the United States
The U.S. wants a refreshed trade pact to do more to make sure that
Chinese goods don’t get in through the back door. But the most
contentious issue is a U.S. push to require that more products are made
in North America — and specifically the United States.
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National flags representing the United States, Canada, and Mexico
fly in the breeze in New Orleans where leaders of the North American
Free Trade Agreement met on April 21, 2008. (AP Photo/Judi Bottoni,
File)
 USMCA included a requirement that
automotive products must be 75% made in North America — up from
62.5% under NAFTA — to qualify for duty-free treatment.
The U.S. wants to push the 75% threshold even higher but it won’t be
easy. Automakers already "have been fine-tuning their supply chains
for years to be able to hit that 75% mark," Childress said. They
would need time to meet the higher standard.
The U.S. is also seeking a brand-new requirement: that 50% of cars
be made in the United States, Carney confirmed in early June.
Currently, none of the USMCA countries gets a guaranteed share of
production. "It’s a red line for both Mexico and Canada, and it goes
against the spirit and the letter of regional integration," Ocampo
said.
Marcos Carias, an economist at the credit insurer Coface, said only
1 in 5 Mexican and 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 that prices
could increase 5% - 7% on the most-affected models.
Businesses want stability
A lot of companies just want relief from Trump’s ever-changing
tariffs. “My interest in this USMCA renewal is just consistency,
right?" said Shawn Miller, co-founder of PKGD Group, which imports
agave spirits (tequila, mezcal and raicilla) from family producers
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
firm are up 62% so far this year after surging 100% in 2025 and 300%
in 2024.
But last year was chaotic.
Trump hit Mexican and Canadian goods with a 25% import tax in
February only to turn around a month later and exempt products that
were eligible for preferential USMCA treatment. The USMCA allows the
Mexican spirits into the United States duty free.
Amid the tumult, three truckloads of Mexican spirits imported by
PKGD crossed the border into the United States and got hit with the
25% tariff. The cost came to $105,000. "For us, it was one
unfortunate day!'' Miller said.
Not knowing what tariffs Trump might conjure up next, PKGD huddled
with its Mexican producers to figure out how to respond. “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 trade 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, California, selling silicone grips that enable
people with disabilities (such as cerebral palsy and Parkinson’s) to
hold things — spoons, cups, pens, toothbrushes.
But sales floundered when she introduced her EazyHold grips in
Canada, where she has dual citizenship. She thinks it’s because the
silicone she imports from Asia kept her grips from having enough
North American content to qualify for USMCA’s duty-free treatment
when they crossed the border from the United States.
Mellin suspects EazyHold could meet the USMCA standards, “but the
rules are complex and unpredictable enough that I genuinely can’t be
sure without hiring a trade attorney."
Mellin believes the USMCA’s rules of origin should be loosened, not
tightened, to help small businesses that can’t afford costlier raw
materials from North America.
“I do understand why the rule exists -- to stop companies from
routing Chinese goods through Mexico," she said. “I just wish it
could tell the difference between that and a small family business
in California making grip aids for people who can’t hold a fork. I’m
not the problem they were trying to solve."
____
AP Writers Maria Verza in Mexico City and Rob Gilles in Toronto
contributed to this story.
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