USMCA: One For All, All for One?

The United States has decided against renewing the United States-Mexico-Canada Agreement (USMCA), a decision that marks the beginning of a negotiation process rather than the end of the deal. Following the announcement by U.S. Trade Representative Jamieson Greer on July 1, the United States is expected to pursue negotiations on potential amendments to the agreement. Manufacturing in North America is so deeply integrated that any changes to the agreement would affect not only Canadian and Mexican exporters but also U.S. businesses that rely on cross-border supply chains for sourcing, production, and maintaining their competitiveness—the effects of which would reach far beyond the region itself.    

The U.S. decision not to extend a new sixteen-year term does not put the trade deal in immediate jeopardy. Under Article 34.7 of USMCA, if the parties do not jointly decide to extend the agreement at the six-year review, they are required to conduct a joint review every year for the remainder of the agreement’s term, which now extends until 2036. At any time between the annual reviews and USMCA’s expiration, the three parties may agree to renew it by consensus. Even before the announcement, the United States and Mexico had begun bilateral negotiations to address outstanding concerns. According to Ambassador Greer’s statement, “the United States will continue to engage with Mexico and Canada to address the agreement’s shortcomings and our trade deficits with these countries.”

Although the U.S. trade deficits with both Canada and Mexico have widened compared with a decade ago, this trend should be interpreted within the broader context of shifting North American and global supply chains. A significant portion of the increase reflects the replacement of China by Canada and Mexico as the United States’ leading sources of imports, as illustrated in Figure 1. Accordingly, reducing bilateral trade deficits with Canada and Mexico is likely more complicated than aggregate trade statistics alone would suggest, given the deep integration of North American production networks and the role of regional supply chains in supporting U.S. manufacturing and competitiveness.

Trade Dynamics in North America

Trade patterns among the United States, Canada, and Mexico demonstrate the high degree of economic integration within North America and illustrate why USMCA remains economically and strategically important for each party. Among the three countries, the United States is the least dependent on intra-regional trade. In 2025, exports to Canada and Mexico accounted for 30.7 percent of total U.S. exports, while imports from the two partners represented 26.9 percent of total U.S. imports. By contrast, Canada’s economic dependence on the U.S. market is substantially greater: 73.6 percent of Canadian exports were destined for the United States, and 52.6 percent of its imports originated there.

Mexico exhibits an even higher level of export dependence, with more than 80 percent of its exports shipped to USMCA partners. At the same time, Mexico’s reliance on imports from the region has gradually declined, with the share of imports from the United States and Canada falling from 49.9 percent in 2015 to 39.5 percent in 2025.

Viewed solely through the lens of trade dependence, Canada and Mexico appear to have stronger incentives than the United States to preserve USMCA. However, this conclusion should be interpreted with caution. A substantial share of North American trade consists of intra-firm transactions among U.S. and multinational manufacturers that have established deeply integrated regional supply chains. Accordingly, disruptions to the agreement would affect not only Canadian and Mexican exporters but also U.S. firms that rely on cross-border production networks for manufacturing, sourcing, and competitiveness.

Less China Content, More U.S. Content

Greer highlighted several unresolved issues on the USMCA agenda in a December 2025 statement to the U.S. House Committee on Ways and Means and Senate Finance Committees. Among them, revisions to the agreement’s rules of origin (ROOs) are likely to be a central focus of future negotiations because they directly determine eligibility for preferential tariff treatment under USMCA.

Reports in May 2026 indicated that, for example, in the automotive sector, the Trump administration sought to raise the regional value content requirement for vehicles from the current 75 percent to 82 percent, while introducing a new requirement that at least 50 percent of content originate from the United States. These proposed changes appear to pursue two complementary policy objectives. First, they would encourage greater onshoring of production and sourcing within North America, with a particular emphasis on expanding manufacturing in the United States. Second, they would reduce manufacturers’ reliance on inputs sourced from China.

While these proposed changes are intended to strengthen regional production and reduce dependence on Chinese inputs, they could also have significant implications for North American trade and supply chains. From the U.S. perspective, stricter ROOs in the automotive sector could have significant implications for imports from Canada and Mexico, where automotive products account for 20.8 percent of U.S. imports from Canada and 31.9 percent from Mexico. If similar requirements were extended to other sectors, such as electronics, the impact on regional trade and production networks would broaden significantly. Given the highly integrated nature of North American supply chains, complying with more stringent origin requirements could prove costly and, in some cases, operationally unfeasible for manufacturers, potentially reducing the utilization of USMCA preferences rather than strengthening regional integration.

Industry stakeholders have echoed these concerns. At the U.S. International Trade Commission’s hearing on USMCA automotive ROOs, several industry associations and a vehicle manufacturer emphasized the importance of stability in the rules of origin for the automotive industry.

If the United States seeks to revise USMCA’s rules of origin, it should consider the deeply integrated nature of North American industrial supply chains. As illustrated in Figure 4, the majority of trade among the three parties consists of intermediate and capital goods that are used in further production processes or as manufacturing equipment. Intermediate and capital goods account for 72.2 percent of U.S. imports from Mexico and 77.0 percent of U.S. exports to Mexico. The corresponding shares for Canada are similarly high, representing 70.2 percent of U.S. imports from Canada and 71.5 percent of U.S. exports to Canada.

The prominence of intermediate goods reflects North America’s highly interconnected production structure, in which parts and components often cross-national borders multiple times before being incorporated into final products. Capital goods likewise play a critical role in supporting ongoing investment and productivity growth, as manufacturers continuously upgrade and expand production capacity. Against this backdrop, rules of origin that substantially increase compliance costs or reduce access to preferential treatment could impose significant burdens on regional manufacturers. More stringent requirements could raise production costs each time intermediate goods cross borders and increase the cost of importing industrial equipment for investment, potentially undermining the efficiency and competitiveness of North American supply chains.

Beyond North America

The economic implications of USMCA extend well beyond North America through globally integrated supply chains—and the world is closely watching what happens with the deal. For decades, businesses have made investment and production decisions on the assumption that North America functions as an integrated market and manufacturing platform. As a result, regional supply chains have become deeply interconnected with global production networks, meaning that changes to USMCA reverberate far beyond the region itself.

Manufacturers in North America cannot source all parts, components, and equipment within the region and continue to rely on imports from trusted suppliers outside North America. As shown in Figure 5, Mexico’s import structure illustrates this reality. Among its ten largest sources of imports, seven countries, other than its USMCA partners and China, collectively account for 23.9 percent of Mexico’s total imports. This highlights the extent to which North American manufacturing remains connected to global supply chains and dependent on inputs from a diverse range of trading partners.

Although it is now clear that USMCA has not been extended for another sixteen-year term, it remains uncertain when the three USMCA parties will formally begin negotiations on its renewal and how long it will take to reach consensus on potential amendments to the agreement. Nevertheless, many stakeholders within and outside North America continue to hope that USMCA will remain a unified framework that benefits all three parties, rather than giving way to a fragmented arrangement.

Hyun Jung “Jessie” Je is Senior Fellow and Director for External Engagement at the Korea Economic Institute (KEI). The views expressed here are the author’s alone.

This material is distributed by KEI on behalf of the Korea Institute for International Economic Policy. Additional information is available at the Department of Justice, Washington, DC.