USMCA in Retrospect: -Part 2- An Analysis of Five Years of Trade and Expectations for 2026

, have positioned Mexico as the United States’ primary trading partner, with a record surplus of $196.913 billion in 2025 and trilateral trade reaching $1.8 trillion in 2022. However, these economic achievements now face a critical juncture. The review scheduled for July 2026, stipulated in clause 34.7 of the treaty, will determine not only the continuity of Mexico’s most important trade agreement but also the conditions under which it will operate in the coming years.

2026 Review: Nature of the Review and Possible Scenarios

The USMCA’s review clause, also known as “The Sunset Clause” (Article 34.7), mandates a periodic review of the agreement, with the next review scheduled for July 2026. The treaty has a 16-year term, with the possibility of extending it for an additional 16 years until 2042 if the parties agree to do so. If a consensus is not reached, annual reviews will proceed.

The review initially focuses on analyzing trade data and the potential incorporation of new goods, particularly in the realm of trade digitalization, and does not constitute a formal renegotiation. However, the current geopolitical landscape and statements from U.S. officials suggest the possibility that the review could evolve into a renegotiation. According to research professor Ángeles Monserrat Gobea Franco of Universidad Panamericana, the key distinction between the two processes is scope: a review focuses on technical adjustments such as tariffs or product inclusions, while a renegotiation involves a comprehensive rethinking of the treaty’s conditions, potentially even questioning its continuity.

Three Possible Scenarios for the Future of USMCA are Outlined:

1. The most favorable scenario for Mexico and the involved countries would be the renewal of the treaty until 2042, extending its validity for another 16 years. This scenario would provide investment certainty, monetary stability, and sustained economic growth, in addition to maintaining a strong trilateral relationship.
2. A second scenario, considered by many to be the most predictable, involves annual reviews. While not the most favorable due to the uncertainty it creates, it would consist of extending the treaty for shorter periods, such as 10 years, with annual reviews involving ongoing dialogue and evaluation. The main disadvantage of this scenario is the instability it generates for companies’ long-term planning and investments.
3. The worst-case scenario, though less probable, would be the non-continuity of the Free Trade Agreement. The consequences of termination would be severe for all three countries, but Mexico would be the most affected as a developing economy with less capacity to withstand an imminent recession. This would entail a decline in GDP and employment, capital flight, price increases due to the loss of tariff exemptions, and a generalized economic crisis.

Key Issues in the Review

Several key issues will dominate discussions in the 2026 review. Automotive sector rules of origin represent a central point, where the United States is anticipated to advocate for a more restrictive interpretation. The USMCA introduced stricter rules of origin in the automotive sector, raising the Regional Value Content to 75% and requiring 40-45% of the value to be produced by workers earning at least $16 per hour.

Labor provisions, particularly the Rapid Response Mechanism (RRM), will also be subject to review, with the possibility that the United States may seek to tighten these clauses. Access to agricultural markets, disputes over yellow corn, glyphosate, and fertilizers, as well as restrictions on Canadian dairy products, will be discussion points.

Mexico’s energy policy, which has prompted consultations with the United States and Canada since 2022 due to alleged discriminatory practices, represents another unresolved sensitive issue. The United States has expressed interest in Mexican resources such as water and lithium. Furthermore, the protection of intellectual property rights, where the USTR has identified deficiencies in Mexico, will be a point of interest.

The growing Chinese investment in North America is a concern for the United States in terms of national security and trade distortions. The United States has emphasized the method of goods production, demanding a higher percentage of local manufacturing in products and reviewing the issue of transgenic corn.

Security and drug trafficking are topics that will undoubtedly arise during the review, potentially becoming points of friction or negotiation. The possibility of terminating the treaty cannot be entirely ruled out, especially given the potential for the United States to prioritize agendas beyond purely economic criteria, such as security and counter-terrorism.

Country Objectives and Strategies

Mexico primarily seeks the continuity of the USMCA, with clear objectives such as maintaining and streamlining supply chains, reducing aluminum and steel tariffs, and reviewing rules of origin in the automotive industry. Mexico’s goal will be to ensure unrestricted access to North American markets and strengthen dispute resolution mechanisms.

Canada has adopted a more assertive stance, defining non-negotiable “red lines” that include the protection of its dairy supply management system and its cultural and digital policies. On its offensive front, Canada’s primary objective is the elimination of Section 232 tariffs imposed by the United States on steel, aluminum, and automobiles.

The trilateral relationship is fundamental. Canada plays a crucial role as a counterbalance in negotiations with the United States, providing economic stability and balance in the trade relationship. Collaboration between Mexico and Canada strengthens their negotiating power against the United States, avoiding a bilateral dynamic that would significantly limit conditions for Mexico.

Political and Electoral Context

The electoral cycle in the United States is the most influential factor regarding the narrative and perception of risk surrounding the USMCA. The possibility of the continuation of Donald Trump’s policies, with control of Congress at stake, introduces considerable uncertainty, given his history of using tariffs and withdrawal threats as negotiation tools to force concessions. In contrast, a Democratic administration would offer greater stability, though it would not eliminate friction.

The United States has implemented unilateral protectionist policies, imposing tariffs on Mexico and Canada under the Donald Trump administration, citing national security reasons amidst intensified trade competition with China. This political volatility contrasts with an inevitable economic reality: dismantling the trilateral trade structure would have immediate and severe economic costs for all three nations.

Certainty Versus Volatility

The next decade of the USMCA will be marked by tension between deep existing economic integration and political uncertainty. The Mexican economy will remain subject to the U.S. economic cycle, a dependence that has intensified over time. The synchronization of the economic cycle between both countries, which strengthened significantly after NAFTA’s entry into force, indicates that any slowdown in the U.S. economy will likely pull Mexico toward slower growth.

The most probable scenario of annual reviews would generate an environment of constant evaluation and adjustment. This could allow for adaptations to new economic and technological realities but would simultaneously create continuous uncertainty, affecting long-term investment planning. Companies that typically plan for 10-15 year horizons would face difficulties in making strategic decisions.

Sectors that have shown accelerated growth under the USMCA, such as automotive (35%), electronics (48%), pharmaceuticals (88%), and chemicals (52%), will likely continue to expand if the treaty’s stability is maintained. Nearshoring and the strengthening of regional supply chains will remain dominant trends.

Export diversification represents an outstanding challenge. While the United States has achieved greater diversification of its exports to Mexico, Mexico exhibits a high concentration in its exports, especially in primary products. The need to increase added value, expand trade with other countries, and link trade policy with productive development will be crucial to strengthening Mexican competitiveness.

Geopolitical Reconfiguration

The competition between the United States and China will continue to influence the dynamics of the USMCA. Mexico has captured a substantial portion of the reduction in the bilateral trade deficit that the United States maintained with China, which could be a favorable point in future negotiations. However, the presence of Chinese investment in North America will remain a sensitive issue that the United States will seek to regulate.

Global backlash against China’s economic rise, intensified after the COVID-19 pandemic, has reconfigured supply chains, directly benefiting Mexico and Canada. This trend will likely continue in the next decade, strengthening Mexico’s position as a manufacturing platform for the U.S. market.

Regional Development and Convergence

The persistence of regional disparities within Mexico represents a structural challenge. While the North and the Bajío region have undergone significant industrial transformation, as mentioned earlier, the South-Southeast remains underdeveloped. The USMCA’s capacity to promote more equitable regional convergence will depend on complementary domestic policies in infrastructure, education, and security.

Investment in logistics infrastructure, technology, and ensuring road safety will be fundamental to maintaining competitiveness. Efficiency in transport and communication processes will determine Mexico’s ability to fully leverage the treaty’s opportunities.

The low economic growth characteristic of the neoliberal model raises questions about long-term sustainability. The growing gap between Mexico’s and the United States’ GDP per capita suggests that simple commercial integration does not guarantee economic convergence. A profound fiscal reform would be required to enable the Mexican government to implement policies that break this cycle and pursue long-term development strategies. Mexico’s dependence on cyclical U.S. policy limits its autonomous response capacity to economic crises. While maintaining and strengthening relations with the United States is important, diversifying markets and gaining independence from these U.S. political-economic cycles can provide greater stability against crises and enhanced international trade power.

Opportunities for Mexico

The 2026 review could include modernization areas such as e-commerce, financial services, and energy. The digital trade chapter could expand to address cross-border data flow, cybersecurity, and artificial intelligence cooperation. Strengthening North America as a green manufacturing platform, integrating clean energy policies and critical minerals, represents a strategic opportunity. Mexico aims for greater openness to private investment in the energy sector, although it must avoid excessive dependence on the U.S. market.

As previously mentioned, the ability of Mexico and Canada to maintain a unified front will be crucial in negotiations. Mexico finds itself in a mediating position, situated between the stances of the United States and Canada. The strength of this strategic alliance will significantly influence the outcome of negotiations and the balance of mutual concessions.

Economic integration, which supports nearly 13 million jobs in the United States, acts as a powerful disincentive against a complete breakdown of the agreement. However, the gap between political rhetoric and actual decisions can generate short-term volatility.

The next ten years of the USMCA will be defined by: the capacity of the three partners to separate technical negotiations from political pressures, modernize the agreement without destroying the foundations of North American competitiveness, and achieve a balance between long-term stability and flexibility to adapt to new economic and geopolitical realities. The trajectory suggests that, despite turbulence and challenges, deep economic interdependence and mutual benefits will maintain the fundamental structure of the USMCA, though possibly with significant adjustments in specific areas.

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