USMCA Negotiations: U.S. Perspective

Introduction: The United States Declines Renewal of Trilateral Trade Pact

The Trump administration opted not to renew the United States-Mexico-Canada Agreement (USMCA), a trilateral trade pact with the three North American countries, leaving businesses awaiting continued bilateral negotiations. Although the USMCA remains in full effect until 2036, it is now subject to annual joint reviews that create uncertainty for the governance of cross-border transactions.

What is the United States-Mexico-Canada Agreement (USMCA)?

The United States-Mexico-Canada Agreement (USMCA) governs nearly $2 trillion in annual trilateral cross-border trade among the United States, Mexico and Canada.[1] Replacing NAFTA on July 1, 2020, and signed during Trump’s first term, the USMCA provides the legal framework for preferential tariff treatment, investment protections and regulatory coordination across North America.[2]

Article 34.7 of the USMCA establishes a mandatory joint review on the sixth anniversary of the agreement’s entry into force (July 1), during which the three countries determine whether to extend the agreement for an additional 16-year term. This sixth-year review, along with any serial annual reviews that may follow (as described below), gives the parties recurring opportunities to evaluate the agreement’s performance, decide whether to extend it and seek negotiating leverage with structural concessions or trade-related updates.

Article 34.7 contemplates three possible outcomes:[3]

1. If all three parties confirm the extension, the USMCA is extended for another 16 years, and the parties convene for another joint review after six years.
2. If one or more parties decline to confirm, serial annual reviews are triggered for the remainder of the agreement’s term (through 2036). At any annual review, the parties may agree to extend, which restarts the 16-year term and six-year review cycle.
3. If no extension is confirmed, the agreement expires at the end of its 16-year term in 2036.

Separately, Article 34.6 allows any party to withdraw from the USMCA with six months’ written notice, regardless of the review process.[4] The agreement would remain in force for the other parties. Although no government has demonstrated intent to invoke this provision, it remains an available option.

Current State of Negotiations July 2026

As of the joint annual sixth-year review held July 1, the United States declined to renew the USMCA, which would have extended the agreement for an additional 16-year term. The USMCA now enters a period of serial annual reviews, giving the three parties continued opportunities to agree on an extension that would last until 2042. If they fail to do so, the agreement will expire in 2036.

The United States’s decision to decline renewal preserves negotiating leverage, as the Trump administration seeks additional structural concessions and trade-related updates from Mexico and Canada. The United States has already begun a series of bilateral negotiating rounds with Mexico in pursuit of changes to rules of origin for key industrial goods, with additional negotiations scheduled for late July.[5]

By contrast, the United States and Canada have not yet begun formal bilateral negotiations comparable to the U.S.-Mexico talks.[6] The absence of scheduled talks may reflect Canada’s continued opposition to bilateral negotiations, which could result in separate bilateral agreements if the parties fail to renew the USMCA. Such bilateral agreements would allow the possibility of asymmetric outcomes, with different rules, preferences or enforcement applying to operations in Mexico versus Canada.

U.S. Priorities for Suspended Negotiations

By rejecting the agreement’s renewal and suspending negotiations with Canada and Mexico, the United States is seeking significant USMCA revisions — particularly to automotive rules of origin, Chinese transshipment rules and access to Mexico’s energy market.[7]

1. Automotive Rules of Origin

In 2024, Mexico exported approximately $193.9 billion in automotive products, with 87% destined for the United States.[8] Given this trade dependency, the USMCA’s rules of origin carry significant economic weight for manufacturers on both sides of the border.

Under current USMCA rules, automotive products must meet the following requirements to qualify for preferential tariff treatment:[9]

• Regional Value Content (RVC): 75% of vehicle value must originate from North America.
• Labor Value Content (LVC): 40-45% of vehicle content must come from facilities paying workers at least $16 USD per hour.
• Steel and Aluminum: At least 70% of a producer’s steel and aluminum purchases must originate in North America.

Now, the Trump administration seeks to raise the RVC threshold to 82% and require that at least 50% of vehicle content originate specifically from the United States.[10] These changes would impose significantly stricter domestic sourcing requirements on manufacturers. Further, the Trump administration is pressing Mexico on labor enforcement under the USMCA’s Rapid Response Labor Mechanism, a separate facility-specific enforcement tool that permits the United States to bring labor enforcement actions against individual Mexican plants.[11]

• Non-Market Economy Inputs and Chinese Transshipment.

The USMCA is designed to promote North American production, with its rules of origin functioning as a barrier to goods that do not meet substantial North American content requirements. This structure, in practice, restricts Chinese-origin content from entering the North American market.  

Under current suspended negotiations, the United States is seeking to strengthen existing USMCA Chinese transshipment rules. These changes would target the use of Mexican manufacturing operations to route Chinese-origin goods into the U.S. market, thus taking advantage of preferential tariff treatment and circumventing higher tariffs that would otherwise apply to Chinese-origin goods. Changes may include increased origin documentation and supply-chain traceability.[12]

• Energy Market Access

Mexico has recently passed constitutional changes that restore government control over its energy sector.[13] These reforms — including limits that restrict private power producers to a minority share of the market — undermine a competitive, rules-based market and limit U.S. investor access to Mexico’s energy sector.

The United States is seeking expanded access to Mexico’s energy market — including oil and gas exploration, electricity generation, natural gas transportation and renewable energy development — along with greater flexibility for U.S. investors in these sectors. However, Mexico’s recent constitutional amendments create heightened risk for energy-sector clients, as USMCA investor protections may not shield them from future regulatory changes under Mexican law.

Practical Implications and Recommended Steps for Cross-Border Transactions

The USMCA remains in full effect. Current preferential tariff treatment, rules of origin and other protections for cross-border investments continue to apply. However, if negotiations resume and result in changes to the agreement, those changes could significantly affect cross-border transactions — particularly those involving the United States and Mexico. To prepare for potential shifts in trade policy, U.S. businesses with existing or planned Mexico-related investments should assess their legal and operational structures, including:

1. Transaction Structuring and USMCA Risk Allocation. Professionals dealing with mergers and acquisitions must be aware of potential changes to the USMCA that may occur during deals. In transactions involving Mexican operations, professionals representing sellers should consider certain carve-outs that demonstrate compliance with the current USMCA, shifting post-signing or post-closing risk arising from USMCA changes to the buyer. Professionals should also consider including representations and warranties confirming the North American origin of products.
2. Origin Compliance and Supply Chain Risk Management. Businesses should audit USMCA compliance for all products receiving preferential tariff treatment across the U.S.-Mexico border, with particular attention to products near applicable RVC thresholds to prepare for potential increases.[14] This compliance documentation should be rigorously maintained, as enforcement and origin audit activity may increase significantly.[15]

Businesses should also quantify current USMCA tariff exposure in dollar terms to measure the financial impact of potential tariff increases on qualifying goods. Further, businesses may consider assessing their Mexican manufacturing operations’ dependence on Chinese-origin inputs, potentially evaluating alternative sourcing options to maintain USMCA qualification and manage transshipment risk.[16]

• Investment Structuring Considerations. Although Mexico has remained a common outsourcing destination for businesses serving the U.S. market, changes to the USMCA could affect the economics and legal risk profile of those investments. Investment agreements, joint venture agreements and facility leases should therefore include mechanisms to address material changes in the USMCA, such as risk allocation provisions.
• Automotive Labor Compliance and Tariff Eligibility. Businesses with automotive manufacturing operations in Mexico should verify wage documentation and labor compliance across relevant facilities. For automotive goods claiming USMCA preferential tariff treatment, businesses should ensure Labor Value Content compliance. Businesses should also be aware of the USMCA’s Rapid Response Labor Mechanism that may result in denial of preferential tariff treatment for goods produced at a non-compliant facility.[17]
• Monitoring USMCA Developments. Businesses with exposure to North American cross-border trade should closely monitor bilateral negotiation developments as U.S.-Mexico talks proceed in late July 2026.

Conclusion

Although the United States declined to renew the USMCA, the rejection does not terminate the agreement. The USMCA remains in effect through 2036, subject to annual joint reviews. This timeline provides businesses with an opportunity to prepare for potential changes as they await continued negotiations. However, the shift to annual reviews introduces ongoing uncertainty, and the Trump administration’s stated priorities signal that significant revisions remain on the table.

Businesses with cross-border operations or supply chains involving the United States, Mexico or Canada should proactively assess their exposure and implement risk mitigation strategies. We will continue to monitor developments as negotiations progress.