Trump May Scrap North America Trade Pact

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Written by Danny Levin, Deputy Editor for IIR News Intelligence (Sugar Land, Texas)

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Summary

President Donald Trump said he may not renew the USMCA ahead of a July 1 deadline, although it is suspected he won't rip up the agreement altogether in favor of negotiating changes past that date. The White House also may look to sign separate bilateral agreements with Canada and Mexico in addition to the trilateral framework.

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Trump's Statement Amid USMCA Negotiations

President Donald Trump implemented the United States-Mexico-Canada Agreement (USMCA) during his first term, replacing the former North American Free Trade Agreement (NAFTA).

"Well, I'm not looking to renew it," Trump told reporters on June 10, seeking more favorable trade terms. "We don't need anything Canada has, we don't need anything that Mexico has, but they need everything that we have."

According to Industrial Info Resources data, there is US$706 billion worth of Industrial Manufacturing Industry projects under construction among the three countries, more than 90% of which is in the U.S. Readers can view a full list of detailed project reports and plant profiles.

Canada and Mexico are both home to roughly US$30 billion of investment, although the former heavily outweighs Canada in the number of projects (219 compared with 60.) Much of Mexico's activity is attributed to the transportation systems sector.

Negotiations on the USMCA are underway. Under the agreement, the three countries must approve a renewal by July 1 or indicate they intend to withdraw, although negotiations can continue afterward. It is widely expected the upcoming renewal deadline will not be reached.

Failure to meet the deadline to renew would trigger annual joint reviews until all parties either agree to an extension or the agreement reaches its scheduled expiration on July 1, 2036.

If all three agree to extend, the next joint review takes place in 2032. Any of the countries can withdraw from the agreement with six months' notice.

Both Canada and Mexico generally want to maintain the agreement as is, but they are preparing for U.S.-demanded changes.

The USMCA integrates North American energy and manufacturing by guaranteeing zero tariffs on certain cross-border products. Major mechanisms of the USMCA include rules of origin for automobiles, including requiring vehicles to have 75% of their content produced in North America.

Although Trump has a 25% tariff under Section 232 in place on some imports, including automobiles, from Canada and Mexico that do not comply with the USMCA, the Brookings Institution notes a majority of U.S. imports from Canada and Mexico that are compliant continue to enter the U.S. duty free.

U.S.-Mexico-Canada Trade

According to the National Association of Manufacturers (NAM):

• Canada and Mexico purchase more than one-third of U.S. manufactured goods exports and serve as the United States' top two trading partners
• 72% of imports from Canada and 63% of imports from Mexico are industrial inputs that go into further manufacturing in the U.S; and
• $600 billion in trade with Mexico and Canada is between companies with the same corporate owners.

Touting the USMCA, NAM President Jay Timmons has said manufacturers have moved production and investments away from Asia to the United States and the rest of the North American market.

The NAM and the American Automotive Policy Council are two of the industry trade groups urging Trump to renew the agreement; some others, the NAM included, also are seeking improvements. The American Automotive Policy Council represents the "Big Three" automakers--General Motors, Ford and Stellantis.

At a December public hearing with the U.S. Trade Representative Jamieson Greer, various trade associations urged several changes, including expanding the list of tariff-free goods to cover items not available in the three countries. Others, especially those in the automotive sector, are lobbying for tariff protections, among other provisions.

United States' Position

In a report for Congress examining the USMCA joint review, the Congressional Research Service outlined major issues expected to be discussed, such as automobile production requirements; Canada's dairy market access; and Mexico's energy policies (e.g. treatment of foreign investors and compliance with USMCA investment commitments.)

In a late May interview with the Council on Foreign Relations, Greer said the White House's overall trade strategy looks to move away from a policy centered around cheap imports--instead utilizing tariffs and other measures to reduce North America's reliance on exports from China, strengthen supply chains, shore up domestic manufacturing capacity and reduce the U.S. trade deficit.

He also suggested the White House could seek bilateral agreements in addition to, or in favor of, a trilateral framework.

Ongoing talks with both countries indicate the administration could be inclined to renegotiate the USMCA rather than seek a withdrawal.

U.S-Canada Relationship

The United States' relationship with Canada on trade is significantly frostier than with Mexico. Greer said in the recent interview there are "significant" trade challenges with Canada, which has retaliatory tariffs in place (e.g. 25% tariffs on goods such as steel, aluminum and automobiles that do not meet the USMCA rules of origin.)

While he said U.S.-Canada trade of energy, minerals and fertilizers, among other things, "really has not been affected," automobiles are a specific sticking point.

Representatives from the two countries had their first meeting on June 11, after which Canadian Trade Minister Dominic LeBlanc stated that Canada expects to negotiate a bilateral deal with the U.S. alongside the USMCA.

U.S. and Mexico

The White House's trade relationship with Mexico is on much stronger footing. The countries began bilaterial negotiations in late May, with other rounds scheduled for June 16-17 and July 20, respectively.

The aforementioned interview--where Greer specifically cited a large trade deficit with the U.S.' southern counterpart--took place just before that first round. "I think that over the course of these negotiations we are going to be talking about rules of origin in a way that enhances U.S. content in these goods," he said. He did add Mexico has already taken some steps on external trade, however, including raising tariffs on non-Free Trade Agreement partners, particularly China and those in the rest of Asia.

"Mexico competes with a lot of these Asian economies for the U.S. market. And so that's an area, I think, of common agreement that we should have."

Key Takeaways

• Trump said he may not renew the USMCA ahead of a July 1 deadline.
• The White House has indicated it plans to negotiate changes, citing a major trade deficit, instead of ripping up the agreement.
• Canada and Mexico are the United States' top two trading partners.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).