Mexican Banks See USMCA Review as Stability Boost

The US proposal to replace the automatic 16-year extension mechanism under the USMCA with mandatory annual reviews under Article 34.7 is unlikely to disrupt regional trade, according to Banorte and HSBC México. The banks argue that the change would preserve trade certainty through 2036, giving Mexico's manufacturing, automotive, and agricultural sectors a predictable operating environment while technical commissions address outstanding tariff and regional content disputes. Although more extensive treaty revisions could eventually face challenges during ratification by the Mexican Senate, the clearer review framework is expected to limit currency and capital market volatility while supporting the long-term competitiveness of North American supply chains.

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Leading Mexican financial institutions view the United States' decision not to approve an automatic 16-year extension of the United States-Mexico-Canada Agreement (USMCA) as the start of a predictable transition that provides a 10-year window of operational stability. Rather than generating uncertainty, the activation of mandatory annual reviews under Article 34.7 creates a constructive investment environment, per HSBC México and Banorte. 

José Carlos Sánchez, chief economist at HSBC México, said that from Mexico's perspective, the decision ultimately supports long-term industrial planning. He added that although the annual reviews could generate periodic friction over the compliance adjustments sought by Washington, the current trade framework will continue to support Mexico's capacity to strengthen cross-border supply chains and capture a larger share of the US market. Furthermore, HSBC México emphasized that a prolonged and institutionalized renegotiation process creates an opportunity for companies operating across North America to participate directly in the discussions and help shape a more resilient long-term agreement.

Financial analysts at Banorte said the activation of the annual review cycle under Article 34.7 was fully in line with market expectations. The bank characterized this prolonged negotiation process as a necessary bridge toward a durable regional accord, noting that the existing trade framework will remain fully in force while technical and sector-specific negotiations continue. This structured timeline allows the three governments to identify the most appropriate economic and political conditions to formalize another 16-year extension. Banorte added that this gradual approach provides continuity, allowing Mexican manufacturers to maintain production schedules without immediate regulatory changes.

However, HSBC cautioned that if the annual reviews result in substantial changes to the treaty's core provisions, the subsequent ratification process in Mexico could become more complex. Any significant renegotiation would require approval by the Mexican Senate, potentially recreating the legislative challenges experienced during the original negotiation of the agreement under the first administration of President Donald Trump.

Despite these potential legislative hurdles, Sánchez estimated that the operational horizon through 2036 provides sufficient time to resolve outstanding trade disputes. This extended timeframe allows Mexico to preserve its competitive position in the US market despite short-term political uncertainty, as businesses can continue relying on the legal certainty provided by the existing agreement while technical working groups address sector-specific disputes over the coming decade. These discussions are expected to focus on issues including Section 232 tariffs on steel and aluminum, automotive rules of origin, cross-border economic security, and agricultural trade regulations.

Despite fears, the July 1 announcement has already stabilized local capital markets. The Mexican peso remained largely unchanged following the declaration, suggesting investors had already fully priced in the outcome.

United States Shifts USMCA to Annual Review Process

The United States' decision not to extend the USMCA for another 16-year term places the trade agreement on a path of mandatory annual reviews over the next decade instead of an automatic extension through 2042. US Trade Representative Jamieson Greer confirmed the decision following a virtual meeting on July 1 with Mexican Economy Minister Marcelo Ebrard and Canadian Trade Minister Dominic LeBlanc. The meeting fulfilled the legal requirement under Article 34.7 of the agreement, which entered into force on July 1, 2020, requiring the three governments to formally state their positions on the treaty's future by its sixth anniversary.

"The United States did not agree to renew the USMCA in its current form. As a result, the USMCA will not be renewed. The United States will continue engaging with Mexico and Canada to address the treaty's shortcomings and our trade deficits with these countries," Greer said. He also confirmed that Washington will meet with Mexico during the week of July 20 for a third round of bilateral talks as part of the review process.

Because the United States declined the extension, the three countries must now conduct annual joint reviews for the next 10 years, after which the agreement will expire automatically in 2036 unless all parties agree to renew it. Ebrard and LeBlanc proposed extending the agreement for another 16 years during the meeting, but Greer said Washington was not prepared to do so, citing persistent trade deficits and unresolved shortcomings in the agreement.

In a video message posted on X, Ebrard emphasized that the trilateral agreement will continue to operate without interruption and without immediate changes to cross-border trade. The Mexican economy minister added that the long-term objective is to progressively reduce the number of outstanding bilateral issues during each annual review.