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The U.S.-Mexico-Canada free trade agreement (USMCA) officially entered into an annual review process on July 1, after the U.S. declined to reaffirm its commitment to the deal that entered into force six years ago.
The midyear deadline stemmed from the renegotiated terms to the current continental free trade agreement, which resulted from talks initiated by the first Trump administration to update the North American Free Trade Agreement and covers more than $2 trillion in annual trade volume. Trump administration officials have laid out a number of changes they want to make to the deal intended to eliminate trade barriers for commerce between the continent’s three largest economies.
While the trade agreement remains in effect for the next 10 years without further action, the Trump administration is pushing for changes that could happen in the annual review process, including in the areas of Mexican labor laws, auto rules of origin, steel and aluminum, Canadian dairy market access, Mexico’s treatment of foreign energy investors and policies favoring state-owned enterprises, and the use of Mexico by Chinese companies to access the U.S. market.
Alternatively, the president could opt to leave the agreement altogether and renegotiate bilateral treaties with Canada and Mexico. Any of the three countries can pull out of the USMCA with six months’ notice.
The Trump administration has suggested that higher duties on Mexican and Canadian products would be part of a preferred endgame to the renewed scrutiny of trade relationships with both countries. That includes a stated goal to change terms so that exemptions for automotive vehicles and parts from tariffs would apply only to vehicles that are at least 50% constructed in the U.S.
As expected since last year, the Trump administration declined to maintain the status quo with the major free trade agreement, officially entering the review process in a trilateral call on July 1. What comes next remains uncertain, and businesses with supply chains or significant exports to either Canada or Mexico should be prepared for varying scenarios that, in addition to current treatment, could include higher fees or further disruption to North American trade.
Auto manufacturing appears to be an early sticking point, as the Trump administration’s aim of a 50% U.S.-origin requirement could receive sizable pushback from Canada and Mexico. The two countries exported $85.5 billion in completed vehicles and auto parts to the U.S., reflecting 55.6% of the country’s total import volume of those items in 2025, according to the U.S. International Trade Commission.
Canada and Mexico also provide the lion’s share of U.S. energy imports, at close to 70% of the U.S.’s $140.3 billion in energy imports in 2025. Digital trade, labor, agriculture, lumber, and critical minerals also figure to be among the points of emphasis, and potential changes, as review talks progress.
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