Tourists from Chattanooga book spa sessions in Cancún, while Canadian auto parts supply factories in the central United States, and vice versa. Happy hour enthusiasts raise glasses of Mexican tequila and mezcal in Seattle bars. It all contributes to the equation. The United States trades goods and services worth $1.9 trillion annually, amounting to $5 billion per day, with Canada and Mexico. These two countries have surpassed China as the top trade partners of the United States.
This means there is a lot at stake when it comes to altering the rules governing trade among these three nations. After a year marked by chaotic tariff policies from U.S. President Donald Trump, many businesses in the United States, Canada, and Mexico would welcome a return to stability throughout North America. That outcome appears unlikely.
The regional trade agreement, known as the United States-Mexico-Canada Agreement (USMCA), negotiated by Trump and touted during his first term, is set for a review on Wednesday. This process will likely take months or even longer, and the path ahead is fraught with challenges.
“There is going to be a lot of drama this summer,” warned Diego Marroquín Bitar, a researcher for the Americas Program at the Center for Strategic and International Studies, during a forum on the USMCA hosted by the Cato Institute.
The United States is making demands that could effectively force Canada and Mexico to shift part of their automotive production to the United States. This may bring more jobs to U.S. auto plants, but it could also disrupt established supply chains and increase the cost of new cars in the United States, where prices now average nearly $50,000. U.S. consumers are already upset about the high cost of living.
Trump, as always, adds tension by threatening to completely withdraw from his own agreement.
In 2020, the USMCA replaced the 1994 North American Free Trade Agreement (NAFTA), which eliminated most trade barriers between the three North American countries. Trump and other critics labeled NAFTA a job killer because it encouraged U.S. companies to relocate factories south of the border, taking advantage of lower-wage Mexican labor and then sending goods back to the United States tariff-free. The USMCA ended up being similar to NAFTA, but it pushed factories to pay higher wages and ensured a larger portion of their production originated in North America, aiming to prevent Chinese products from slipping through regional borders without tariffs.
The North American trade agreement must be reviewed every six years. The current deadline is set for Wednesday, but “nothing will happen on July 1,” said Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness.
Negotiators might agree on Wednesday to renew the USMCA in its current form for another 16 years. However, that is considered highly improbable. Instead, they are expected to continue working on ways to improve it. They have until 2036 to reach an agreement, or the pact will expire. Meanwhile, any USMCA country can withdraw from the agreement, provided they give six months’ notice to the other two partners. This is a red alarm bell that Canada and Mexico, reliant on trade with the United States, worry Trump might sound.
Ocampo speculates that Trump doesn’t genuinely want to abandon the agreement; he just wants to use uncertainty to keep pressure on Mexico over security and immigration issues.
The United States and Mexico have held talks on renewing the trade agreement. However, Canada has found itself sidelined. “The danger for Canada is this: the U.S. and Mexican governments could reach an agreement on changes to key provisions of the treaty and then show up in Ottawa saying, ‘This is what we’ve agreed on. Take it or leave it,’” explained Patrick Childress, a partner at the law firm Holland & Knight and a former U.S. trade negotiator.
Canadian Prime Minister Mark Carney mentioned that all three trade partners plan to meet virtually on Wednesday. He added, in French, that his priority is updating the USMCA.
The United States wants an updated trade agreement that does more to ensure Chinese goods don’t sneak in. But the most contentious issue is the U.S. push for more products to be manufactured in North America, particularly in the United States. The USMCA included a requirement that automotive products must be 75% North American-made, up from 62.5% under NAFTA, to qualify for tariff-free treatment. The United States wants to push this threshold even higher, but that won’t come easily. Auto manufacturers have fine-tuned their supply chains for years to meet the 75% standard. They will need time to meet a higher threshold.
The United States also seeks a completely new requirement: that 50% of cars be made in the United States, confirmed Carney in early June. Currently, none of the USMCA countries has a guaranteed production quota.
“This is a red line for both Mexico and Canada and goes against the spirit and letter of regional integration,” stated Ocampo.
Marcos Carias, an economist with the credit insurer Coface, stated that currently only one in five Mexican and Canadian cars imported to the United States would meet the 50% standard. Vehicle models likely to face higher costs under the plan include Ford’s compact Maverick truck, Chevrolet’s midsize Equinox SUV, and some Nissan sedans, all manufactured in Mexico. Carias’s rough estimates suggest prices could rise between 5% and 7% for the most affected models.
Many companies just want a break from Trump’s ever-changing tariffs. “My interest in this USMCA renewal is simply consistency, yes?” said Shawn Miller, co-founder of PKGD Group, which imports family-produced Mexican agave beverages (tequila, mezcal, and raicilla). “If the rules change, they change. But we’d really like to know what they are going to be and have them remain that way for a while.”
Business is going well for PKGD. The Holland, Michigan-based company’s sales have increased 62% so far this year, following a 100% rise in 2025 and a 300% increase in 2024. But last year was chaotic. Trump imposed a 25% import tax on Mexican and Canadian goods in February, only to reverse course a month later and exempt products eligible for the USMCA’s preferential treatment. The treaty allows Mexican beverages to enter the United States tariff-free.
Amid the turmoil, three truck shipments of Mexican beverages imported by PKGD crossed into the United States, facing the 25% tariff. The cost totaled $105,000. Unsure of what tariffs Trump might devise next, PKGD met with its Mexican producers to figure out how to respond. “What can we absorb? What can they absorb?” Miller wondered. Miller emphasized that he and his Mexican suppliers “are not large multinational corporations with dedicated trade departments, lawyer teams, or lobbyists focused on trade policy.”
AP journalists Maria Verza in Mexico City and Rob Gilles in Toronto contributed to this story.