Six years after replacing the North American Free Trade Agreement (NAFTA), the United States-Mexico-Canada Agreement (USMCA) has reached a major test. On July 1, 2026, the three governments completed the agreement’s first scheduled review, but the American government declined to join Canada and Mexico in extending it. While USMCA remains in force for now, there will now be an extended period of negotiations over the rules governing America’s most important trading relationships. This extended period of uncertainty will hurt investment and American competitiveness.
USMCA was not written as a permanent agreement. After six years of being in effect, all three countries had the pre-scheduled opportunity to extend it for the next 16 years by July 1. Unanimous approval would have allowed a longer horizon for businesses, safeguarding long-term investments. Without it, the countries must now meet every year until they agree to an extension or the agreement expires.
This puts the agreement in legal limbo: neither a withdrawal nor a renewal. Withdrawal is a separate step requiring six months’ notice. Instead, the Trump Administration has chosen to keep the agreement operating while using the review process to extract concessions. The Office of the U.S. Trade Representative says it will not “rubber stamp” an extension before addressing persistent disputes. Among the likely objections are Canadian dairy restrictions, rules determining how much of a vehicle must be made in North America (specifically in the United States) to qualify for tariff-free status, and shipping Chinese goods to the United States through Mexico or Canada (also known as transshipment).
While there are reasonable issues to negotiate, the larger problem is that the Administration is now actively weakening the agreement while attempting to revise it. Tariffs imposed under other trade laws now reach steel, aluminum, automobiles, and other products from Canada and Mexico. In July, the White House announced additional 50% tariffs on some Canadian goods, including goods that otherwise qualify for USMCA treatment, almost certainly violating the deal as it stands. It subsequently delayed the tariffs by three days; a more permanent deal is in the works. A trade agreement is supposed to provide certainty to businesses; it cannot when the Administration is changing rules sector by sector.
That uncertainty is especially important because Canada and Mexico are the biggest markets for American goods. In 2025, the two countries bought $671 billion in U.S. goods, or about 31% of all American goods exports, and sold the United States $916 billion in goods. Mexico and Canada constitute the two largest U.S. trading partners, ahead of China.
President Trump has argued that Canada and Mexico need the American market more than the United States needs them. The first part is true: both countries send a larger fraction of their exports to the U.S. than vice versa. But all countries can win by engaging in trade. While the United States has more bargaining power than its neighbors, it will pay a substantial price for disrupting trade with its neighbors.
Geography explains why. Countries tend to trade most with their neighbors. Short distances reduce shipping costs and allow companies to divide production across borders. For example, North American auto production is a highly integrated regional system in which engines, transmissions, and other vehicle parts can cross borders several times. Tariffs imposed at each stage raise the overall cost of producing cars in the United States as well as in Canada or Mexico, ultimately hurting both consumers and international competitiveness.
The USMCA review should be used to improve the agreement, not to create permanent instability through frequent reviews. Better enforcement, updated rules of origin, stronger provisions on digital services trade, and stronger protections against transshipment can all be negotiated. But withholding an extension will hurt investment without making North American supply chains disappear. Canada and Mexico may depend more heavily on the United States than vice versa, but the United States is more prosperous and economically secure when trade operates under rules that businesses can trust.