U.S. Declines to Extend Key Trade Agreement with Canada and Mexico

The United States has opted not to extend a significant trade agreement with Canada and Mexico. This decision, announced by the Office of the United States Trade Representative, affects the United States-Mexico-Canada Agreement (USMCA).

The deadline for deciding on the extension of the USMCA, which would have extended its term until 2042, has passed as of July 1. Instead, the agreement remains subject to annual reviews for the next decade, expiring in 2036 unless a new extension is negotiated.

Jamieson Greer, the U.S. Trade Representative, stated, “The United States will continue to engage with Mexico and Canada to address the agreement’s shortcomings and our trade deficits with these countries. However, the agreement remains in force pending resolution of these issues or until the agreement’s termination.”

The USMCA replaced the North American Free Trade Agreement (NAFTA) in 2020. At its introduction, former President Trump described it as the “fairest, most balanced, and beneficial trade agreement we have ever signed into law.” However, Trump’s perspective changed, and he recently commented that the U.S. would “do better as a country” without the agreement.

Another round of bilateral negotiations between the U.S. and Mexico is slated for the week of July 20, aiming to address remaining issues. The consequences of the U.S. potentially withdrawing from the agreement depend on the existence of any subsequent bilateral trade deals.

Trade experts indicate that without such agreements, both Canada and Mexico might experience economic slowdowns. “Absent bilateral deals, growth would slow in both Canada and Mexico as the tariff exemption which has kept both countries’ external sectors afloat over the past year was removed,” economists from Capital Economics reported. However, they noted that the average tariff rate is expected to increase to only 10%, mitigating the risk of recessions.