Washington D.C. – Former President Donald Trump is reportedly considering a scenario where the United States pursues a bilateral trade agreement with Mexico, effectively excluding Canada from the United States-Mexico-Canada Agreement (USMCA). This potential shift in trade policy, revealed by U.S. Officials, could significantly alter the economic landscape of North America and reshape decades of established trade relationships.
The discussions center around perceived difficulties in ongoing negotiations with Canada, particularly regarding energy policy and dispute resolution mechanisms. While the specifics remain fluid, the possibility of a revamped trade pact without Canada raises questions about the future of integrated supply chains and the potential for increased tariffs or trade barriers. The USMCA, which replaced the North American Free Trade Agreement (NAFTA) in July 2020, was intended to create more balanced, reciprocal trade and support high-paying jobs in North America, according to the United States Trade Representative.
USMCA’s Current Structure and Key Provisions
The USMCA, encompassing the United States, Mexico, and Canada, is a free trade agreement designed to govern commerce among the three nations. The agreement, signed in September 2018 and fully implemented in 2020, builds upon the foundation of NAFTA, aiming to modernize and strengthen trade ties. As of 2022, U.S. Goods and services trade with USMCA nations totaled an estimated $1.8 trillion, with exports reaching $789.7 billion and imports totaling $974.3 billion . Key provisions of the USMCA include updated rules of origin for automobiles, disciplines on currency manipulation, and protections for U.S. Intellectual property.
The agreement also addresses modern trade concerns, incorporating chapters on Digital Trade, Anticorruption, and Good Regulatory Practices. It includes provisions specifically designed to benefit Small and Medium Sized Enterprises (SMEs). The International Trade Administration highlights that all products that had zero tariffs under NAFTA continue to have zero tariffs under USMCA , although Canada has provided expanded access for U.S. Exports of certain dairy categories.
The Potential for a Bilateral Agreement with Mexico
The prospect of a bilateral agreement with Mexico stems from frustrations expressed by Trump regarding Canada’s trade practices. While the exact nature of these concerns hasn’t been fully detailed, officials suggest disagreements over energy policy and dispute resolution are central to the discussions. A move to a bilateral arrangement could allow the U.S. To negotiate terms more favorable to its interests, potentially leading to increased investment and job creation within the U.S. However, it could also disrupt established supply chains and potentially lead to retaliatory measures from Canada.
The USMCA’s rules of origin, designed to encourage North American production, could be significantly altered in a bilateral agreement. Currently, the agreement stipulates a certain percentage of a vehicle’s components must be manufactured within the USMCA region to qualify for tariff-free treatment. A bilateral agreement with Mexico could potentially lower this threshold or introduce new requirements, impacting the automotive industry and related sectors.
Canada’s Position and Potential Responses
Canadian officials have not yet publicly responded to the reports of Trump considering a bilateral agreement with Mexico. However, This proves anticipated that Canada would strongly oppose such a move, viewing the USMCA as a mutually beneficial arrangement. Canada could potentially respond with its own tariffs or trade barriers, escalating tensions and potentially triggering a trade war. The Canada–United States–Mexico Agreement (CUSMA), as it is known in Canada, is considered vital to the Canadian economy .
Canada could explore alternative trade agreements with other nations to diversify its economic partnerships and reduce its reliance on the U.S. Market. The potential for a fractured North American trade landscape underscores the complex geopolitical dynamics at play and the potential for significant economic disruption.
What to Watch For
The coming weeks will be critical in determining the future of North American trade. Key developments to watch include official statements from the U.S., Canadian, and Mexican governments, as well as any formal notifications of intent to renegotiate or withdraw from the USMCA. The outcome of these discussions will have far-reaching implications for businesses, workers, and consumers across all three countries. The next procedural step will likely involve formal consultations between the governments, followed by potential negotiations and, ratification by each country’s legislative bodies.
Share your thoughts on the potential changes to the USMCA in the comments below. And please share this article with your network to preserve the conversation going.
