The US-Mexico-Canada Agreement (USMCA) is set to renew, but the path forward is lined with landmines. After a year of President Donald Trump's chaotic tariff policies, many businesses are eager for stability. However, the US is making demands that could force Canada and Mexico to surrender some automaking production to the US, which could disrupt established supply chains and push up US prices for new cars. Trump has added to the tension by threatening to pull out of the agreement altogether.
The USMCA replaced the 1994 North American Free Trade Agreement (NAFTA) in 2020, which tore down most trade barriers between the three countries. While the USMCA was similar to NAFTA, it pressured factories to pay higher wages and ensure that more of what they made originated in North America to prevent Chinese products from slipping across regional borders duty-free. The USMCA included a novel provision requiring the pact to be renewed every six years, and negotiators have until 2036 to reach an agreement.
One of the most contentious issues is a US push to require that more products are made in North America, specifically the US. The US wants to push the 75% threshold higher, but this won't be easy for automakers who have already fine-tuned their supply chains. The US is also seeking a brand-new requirement that 50% of cars be made in the US, which is a red line for both Mexico and Canada. This could increase prices for affected vehicle models by 5-7%.
Businesses are eager for stability, and many are struggling with the ever-changing tariffs. For example, PKGD Group, which imports agave spirits from Mexico, faced a $105,000 tariff on three truckloads of Mexican spirits due to the changing rules. Similarly, Kerry Mellin, a Hollywood costume designer, is struggling with the complex and unpredictable rules of the USMCA, which could impact her business selling silicone grips for people with disabilities.
In my opinion, the USMCA's rules of origin should be loosened, not tightened, to help small businesses that can't afford costlier raw materials from North America. The agreement's provisions are complex and unpredictable, and they could be hindering rather than helping businesses. The US should focus on creating a more stable and predictable trade environment for all businesses, not just large multinational corporations.
The renewal of the USMCA is a critical moment for North American trade, and it's essential to get it right. The US should work with Canada and Mexico to create a more stable and predictable trade environment that benefits all businesses, not just those with dedicated trade departments and lobbyists. It's time for a new approach to trade policy that puts small businesses and consumers first.
