The Power of Three: A New Era for North American Partnership

Since its implementation in 2020, USMCA has been instrumental in shaping North America’s economic landscape. However, the recent return of US President Donald Trump and his shifts in trade policy have introduced uncertainty about the agreement’s future. As USMCA approaches its scheduled 2026 review, Canada and Mexico are actively working to strengthen their bilateral partnership. However, experts agree that all parties stand to benefit from reaching a consensus to ensure continued stability and growth in the region.

“We can take advantage of USMCA to build an integrative, innovative, and resilient economy,” said Juan Bringas, Director of Entrepreneurship and Promotion, Ministry of Economic Development of Monterrey, at Mexico Business Summit 2025.

In 2023, trilateral trade under USMCA hit US$1.88 trillion, growing by double digits and making the region one of the world’s most active economic blocs. Trade between the three countries averaged US$3.6 million every minute. In the same year, Mexico and Canada overtook China as the United States’ top trading partners for the first time since 2002. By early 2024, North American trade with the United States was 195% higher than trade with China, driven by higher tariffs on Chinese imports and stronger regional cooperation.

“USMCA is more than a commercial agreement; it is a collaboration framework that has contributed to the economic development of North America” said Annabelle Larouche, Consul General of Canada in Monterrey.

USMCA increased the region’s appeal for FDI, especially in greenfield projects and supply chain realignment. Greenfield investment in North America rose by 136% between 2020 and 2023, reaching US$190 billion in 2023. In 1Q24 alone, the region attracted US$94 billion in new investment, with strong momentum in artificial intelligence, electric vehicles, semiconductors, and infrastructure.

Labor rights remain a key pillar of the agreement. From May 2021 through June 2024, 25 labor complaints were filed under the Rapid Response Labor Mechanism (RRM), mostly involving Mexico’s automotive sector. These procedures have led to improvements in working conditions, including better wages and the reinstatement of dismissed workers. Despite this progress, labor protection still varies widely across sectors, particularly in Mexico’s informal economy.

USMCA: Basis for Regional Integration

Mexico’s role in this integration has grown significantly. In 2024, the country became the United States’ largest goods supplier, driven by strong exports of vehicles, machinery, electronics, and agricultural products. On the import side, Mexico increased its purchases of US gasoline, corn, machinery, and medical instruments. “Over 1 million people cross the Mexico-US border every day, generating over US$1 billion per hour,” said Lorenzo Barrera, President, AMCHAM Northeast Chapter, and President, Banco BASE. While trade has surged, Mexico has struggled to fully capitalize on investment flows. In 2023, it received US$37 billion in FDI, about half from the United States and Canada. However, only 13% of this investment came from new ventures, suggesting caution among investors due to regulatory uncertainty and institutional hurdles.

In the United States, USMCA has reinforced efforts to reduce reliance on Chinese supply chains while securing critical imports. US exports to Canada include vehicles, machinery, electronics, and agricultural goods, while imports from Mexico center on auto parts, computers, and farm produce. In 2023, the United States attracted US$311 billion in FDI, maintaining its status as the world’s top investment destination. Wilson Center highlighted the strengthening of labor enforcement mechanisms and supply chain resilience as major wins under the agreement.

Canada also plays a central role in North American trade. In 2024, it remained the top destination for US exports, particularly in energy, machinery, and aerospace. At the same time, Canada imported several volumes of US agricultural goods and technology components. It attracted US$50 billion in FDI in 2023, underpinned by its strong institutional framework and competitive market. Nonetheless, trade tensions remain. Disputes around dairy quotas and agricultural access are expected to dominate discussions in the 2026 review of the agreement.

Trade Deficits and Global Economic Context

As USMCA approaches its six-year milestone, officials from all three countries have reaffirmed their commitment to deeper economic integration. However, uncertainty remains as the US administration has signaled plans to renegotiate the agreement, citing unmet expectations.

As the current administration reviews potential changes to USMCA or its long-term direction, C.J. Mahoney, Former Deputy Trade Representative in the United States, emphasizes that a key consideration will be whether the agreement has fulfilled the core objectives set during its original negotiation under President Trump’s first term. When measured by investment growth, job creation, and supply chain resilience, Mahoney says USMCA has delivered tangible and verifiable results.

The US International Trade Commission’s latest report on the USMCA’s provisions highlights that the tightening of rules of origin has effectively reduced US imports of motor vehicle engines and transmissions from non-USMCA countries. This shift has resulted in increased employment, higher wages, greater capital expenditures, and improved revenues for US-based producers in these sectors. 

Nevertheless, some critics argue that USMCA has not succeeded in reducing the United States’ trade deficits with Mexico and Canada. While this criticism is valid to some extent, Mahoney emphasizes that trade balances are largely influenced by broader global economic dynamics. He explained that the United States is among a group of major economies that consistently run persistent trade deficits. Some attribute these enduring imbalances to fiscal and industrial policies in surplus countries that distort global trade dynamics, ultimately to the detriment of US labor markets and manufacturing sectors.

Trade data shows that the US trade deficit with Mexico rose from US$111 billion in 2020 to US$172 billion in 2024. In contrast, the deficit with Canada increased more modestly, from US$14 billion to US$63 billion over the same period. Despite these widening gaps, Mahoney emphasized that neither Mexico nor Canada are the primary contributors to the US trade imbalance. 

Trump’s Tariff Announcements and USMCA Renegotiation Plans

Previously, President Donald Trump announced plans to renegotiate USMCA in an effort to prioritize US jobs, signaling a potential shift away from regional cooperation. “I think the president is absolutely going to renegotiate USMCA, but that is a year from today,” said US Commerce Secretary Howard Lutnick, referring to the upcoming scheduled review in July 2026. “He wants to protect American jobs,” Lutnick added. “He does not want cars built in Canada or Mexico when they can be built in Michigan and Ohio. It is simply better for American workers.”

In addition to existing USMCA provisions, President Trump has threatened several new tariffs. This move forms part of a broader strategy aimed at addressing what he views as inadequate progress on border security and the fentanyl crisis. In a letter, Trump asserted, “Mexico has been helping me secure the border, BUT what Mexico has done is not enough. Mexico still has not stopped the cartels who are trying to turn all of North America into a narco-trafficking playground.” 

As Trump’s tariff threats resurface, Canada and Mexico are taking steps to protect their shared trade interests. Mexican President Claudia Sheinbaum and Canadian Minister Mark Carney recently met to discuss coordinated responses. “We both agreed that USMCA must be respected, and we shared our experiences about the letter we received from President Trump,” Sheinbaum said. 

While Canada and Mexico pursue deeper bilateral relations due to the tariffs, the United States’ tariffs on both countries remain comparatively lower than those imposed on other partners. “Mexico has a tariff rate of about 4% with the United States, while the European Union has a 9% and China a 40% rate,” said Barrera. This reflects stronger integration supported by exemptions maintained under USMCA, providing a key incentive for both countries to negotiate and reach agreements with the US administration.

“Whatever happens during the USMCA renegotiation, Mexico will continue to be favored over any other country thanks to its large advantages,” said Bringas. 

Canada and Mexico represent 32% and 41% of US trade-related GDP respectively, this reinforces their motivation to stay aligned with US trade regulations. More so, as a broader renegotiation of USMCA appears unlikely in the short term. “USMCA helps to bring companies from all over the world, which can take advantage of the region’s robust industrial ecosystem,” said Larouche. “The region is the safest and most competitive economic bloc in the world.”

The anticipated continuation of the agreement aligns with recent remarks from US Treasury Secretary Scott Bessent, who clarified that “America First,” President Donald Trump’s slogan, does not mean “America alone.” Instead, Bessent emphasized, it calls for deeper collaboration and mutual respect among trade partners. Looking ahead, BofA projects that any significant revisions to USMCA will likely occur in 2026, when mandatory review mechanisms take effect. Until then, Canada and Mexico are expected to remain key partners in US trade, despite mounting pressures from Washington.

 “We have to take advantage of North America’s strengths to position the region as one of the strongest blocks in the world,” said Larouche.