Six years prior, President Donald Trump proclaimed his US-Mexico-Canada Agreement, or USMCA, as the “fairest, most balanced, and beneficial trade agreement we have ever signed.” Now, as the agreement approaches its review period, Trump indicates his willingness to withdraw from it. “I’m not looking to renew it,” Trump stated last month. “We don’t require any of the resources or products that Canada offers.” We possess resources and goods that are essential to Mexico, while their offerings do not hold the same necessity for us. “They have to treat us better.” That assertion is not entirely accurate; however, even if it were, Trump does not possess the authority to unilaterally terminate the agreement. The USMCA, which replaced the North American Free Trade Agreement, facilitates approximately $2 trillion in annual trade among the three neighbouring countries. Supply chains, especially within the automotive sector, rely heavily on the agreement’s duty-free provisions, as components traverse the borders of the US, Mexico, and Canada numerous times prior to the completion of a vehicle on the assembly line. All three countries must conduct a review of the agreement every six years, determining whether to renew it or implement modifications.
Following a virtual meeting with trade leaders from Mexico and Canada on Wednesday, the Trump administration was unable to secure an agreement, as stated by US Trade Representative Jamieson Greer. However, this does not imply that the USMCA will cease to exist. Instead, the existing arrangements will persist, necessitating that the countries reconvene on an annual basis for the next decade to engage in negotiations. Senior administration officials indicated a willingness to pursue trade discussions on a bilateral level to address particular concerns, including the reduction of the trade deficit that the United States maintains with Mexico and Canada. Trade deficits arise when a nation purchases more goods and services from another country than it sells to that country. While prolonged negotiations won’t significantly impact consumers, they would introduce a new layer of uncertainty for businesses and disrupt their long-term strategies, noted Scott Lincicome, a vice president at the libertarian-leaning Cato Institute. Withdrawing from the deal altogether remains a viable option. However, the situation is intricate. The earliest it could occur is six months from now, according to the stipulations of the agreement. There remains the inquiry regarding Trump’s potential authority to act unilaterally in this matter, absent congressional endorsement.
In a 2020 report on the USMCA, the Senate Finance Committee stated that “The United States cannot withdraw from a congressionally approved trade agreement without the consent of Congress.” Such a move would almost certainly encounter legal challenges and prolong the process further, Lincincome stated. However, senior administration officials indicated on Wednesday that the degree to which they require congressional approval “depends on the nature of the results of these negotiations.” For instance, if one country committed to lowering trade barriers as part of an agreement, they argued that congressional approval would not be necessary. “Approval from Congress is only necessary when we are altering a US law.” Legality aside, economists and trade experts generally do not anticipate a withdrawal, considering the significant stakes for the United States. In addition to straining US relations with two of America’s top trading partners, “We’d see chaos, stock market gyrations,” Lincicome said, likely accompanied by higher prices and shortages as supply chains adjust to higher tariffs.
Mexico surpassed China three years ago as the leading source of foreign goods shipped to the US. In the previous year, the United States imported $534 billion in goods from Mexico, accounting for almost 16% of the total value of all goods imported by the US, as reported. Canada ascended to the second position last year, as the US imported $382 billion in goods from the country. The Trump administration is currently less inclined to pursue the nuclear option, according to Michael Pearce, in a recent note. Trump’s favorability is currently facing challenges due to the increase in petrol prices, with midterm elections approaching. Given the enormous costs to US investment and trade—especially in pivotal Midwestern states—triggering the six-month exit provision and withdrawing from the USMCA totally is an extremely remote possibility, according to experts.