Analysis: U.S. Puts USMCA on the Clock as Trade Leverage Replaces Certainty
Pact remains in force, but Washington’s refusal to extend it now turns North American trade into an annual bargaining exercise centered on autos, China, tariffs and investment risk
The U.S. decision not to extend USMCA in its current form is less an immediate rupture than a deliberate shift from trade certainty to negotiating leverage.
U.S. position: When the USMCA Free Trade Commission met virtually on July 1 for the agreement’s first mandatory six-year joint review, U.S. Trade Representative Jamieson Greer announced that the United States “did not agree to renew the USMCA in its current form,” while stressing the pact remains in force as Washington seeks to address perceived shortcomings and trade deficits with Mexico and Canada.
Mexico and Canada, by contrast, each confirmed support for a 16-year extension — Canada had already signaled its position in a June 1 letter from Trade Minister Dominic LeBlanc to Greer and Mexican Economy Secretary Marcelo Ebrard.
The split outcome was not a surprise; Greer told the House Ways and Means and Senate Finance committees in December that the administration would not “rubber stamp” the deal. But the formal refusal converts what was designed as a routine confirmation into a rolling, open-ended negotiation.
What actually changed. The key point is that this does not end USMCA. The agreement continues to operate, including its tariff preferences, rules of origin, investment protections and dispute-settlement structure.
What did not happen on July 1 was the optional decision to extend the pact’s 16-year term beyond its scheduled July 1, 2036, expiration. Under Article 34.7, the failure to reach unanimous agreement activates two mechanisms.
First, the Free Trade Commission must now conduct joint reviews every year for the remainder of the term — annually through 2036 — creating recurring decision points and recurring pressure points.
Second, the “at any time” extension pathway of Article 34.7.4 remains open: the three heads of government can confirm a new 16-year extension in writing whenever they choose, which would reset the clock and push the next scheduled review to 2032. That provision is the one to watch. It means the extension is deferred, not foreclosed — and it gives Washington the ability to dangle certainty as the ultimate concession without taking the far more disruptive step of formal withdrawal.
The bilateral wrinkle. President Trump has repeatedly questioned the value of the trilateral structure itself, saying in January there was “no real advantage” to USMCA and in June that he “would rather not have the agreement” but might sign an extension anyway.
Administration officials have floated replacing the pact with separate 10-year bilateral deals with Mexico and Canada — a structure both countries have publicly rejected, and one that industries built on integrated three-country supply chains view as a compliance nightmare.
The practical result is a two-track process: substantive text-based negotiations with Mexico are underway, with a third round scheduled for the week of July 20 in Mexico City, while formal negotiations with Canada have yet to begin. USTR officials have been openly critical of Ottawa’s engagement, with Greer calling talks with Canada “more challenging” and pointing to Canada’s courtship of Chinese investment as a major obstacle. That asymmetry matters: Mexico is negotiating its way toward accommodation, while the U.S./Canada track is stalled over sectoral tariffs, dairy, lumber and China policy.
Autos are the center of gravity. The Trump administration is using the review to press for tougher rules of origin and more U.S.-specific content in North American vehicles. Reuters reported that U.S. negotiators have demanded that North American-built vehicles contain 50% U.S. content, pushing the broader regional content threshold to 82%. That would be a structural change for automakers whose supply chains were built on the premise that U.S., Mexican and Canadian content could be pooled across the region. Parts and components often cross borders multiple times before final assembly, and a U.S.-specific content mandate would force companies either to rework supply chains at significant cost or accept tariffs on some vehicles.
The risk is that stricter origin rules may not simply pull production into the United States; they could raise costs, complicate compliance and make North American production less competitive against Asia and Europe. That is precisely why automakers — including Canada’s new auto lobby, which has made the USMCA review its founding priority — are pushing to preserve the trilateral framework.
Current Trump tariffs have already altered the relationship, including 25% duties on Mexican and Canadian autos, 50% on metals and 10% on lumber, meaning the negotiation is partly about restoring preferences the agreement was supposed to guarantee.
The U.S. rationale. Washington’s case is straightforward: the administration believes USMCA has not delivered enough reshoring, has allowed too much third-country content — read: Chinese content transshipped through Mexico — to enter North American supply chains, and has not sufficiently reduced U.S. trade deficits with its neighbors.
USTR said the first U.S./Mexico negotiating round focused on automotive rules of origin, steel and aluminum, economic security, and “free riding from third countries,” while the second round advanced work on industrial rules of origin and opened discussions on agriculture, labor and environment. The second round also produced agreement to establish a committee reviewing USMCA Chapter 12 on regulatory compatibility, and touched active trade-remedy friction, including new duties on Mexican tomatoes and an ongoing investigation into strawberries.
The economic-security agenda — export controls, critical minerals, screening of Chinese investment — is where the review stops being a conventional trade negotiation and becomes an instrument of China policy. For Canada in particular, aligning with U.S. restrictions on Chinese capital may prove the real price of a 16-year extension.
The agricultural stakes. For agriculture, the danger is less immediate but still significant. Mexico and Canada together buy more than a third of U.S. agricultural exports, and USDA data show Mexico remained a leading destination for U.S. shipments in 2025, including corn, dairy, pork, soybeans and poultry. Farm groups have warned that North American trade is critical for farmers, fishers and rural communities, and their core interest is simple: keep the tariff preferences intact and keep the review from spilling into retaliation.
Two agricultural flashpoints deserve attention. Mexico has drawn a public red line on U.S. proposals for seasonal restrictions on produce, with Ebrard stating Mexico would not accept such changes and would seek alternative suppliers for U.S. agricultural imports if Washington presses the demand — a warning that corn, pork and dairy exporters should take seriously given Mexico’s demonstrated willingness to diversify sourcing.
On the northern border, Canadian dairy remains the perennial U.S. grievance, and Ottawa has made clear that supply management is politically untouchable.
The ethanol stakes. Canada is the single most important foreign market for U.S. ethanol — the top destination for five consecutive marketing years, driven by Canadian low-carbon and renewable fuel mandates — and 2025 set records: shipments to Canada topped 792 million gallons, an annual record for any single destination and more than a third of total U.S. ethanol exports of 2.18 billion gallons. But the hedging has already begun. After Trump imposed a 10% tariff on Canadian biofuel entering the U.S. in March 2025, British Columbia moved to require that its 5% ethanol mandate be met with renewable fuels produced in Canada, and Ontario — home to roughly three-quarters of Canadian ethanol production — adopted a domestic-content requirement of its own. Provincial protectionism aimed at the largest U.S. ethanol market is precisely the kind of slow-motion erosion the annual-review process invites: no single measure makes headlines, but each one chips away at a demand base the U.S. corn complex has come to rely on.
The fertilizer codependency. The deepest U.S./Canada agricultural entanglement, however, runs through fertilizer — a three-nutrient codependency that makes each side hostage to the other. Start with potash, where the leverage is most lopsided. Canada is the world’s largest producer, accounting for about 32% of global output, with all 11 active mines in Saskatchewan; exports have run around 20 million tonnes annually, more than 90% of production is exported, and more than 80% of the potash used in U.S. agriculture comes from Saskatchewan. The asymmetry is stark: the U.S. produced roughly 400,000 metric tons of potash in 2023 against consumption of about 5.3 million metric tons, no substitutes exist for potash as a plant nutrient, and the second-largest supplier after Canada — at just 8–10% of U.S. imports — is Russia. There is no diversification path. Critically, potash is also the clearest demonstration of USMCA preferences functioning as a shield: when the 2025 tariffs hit, USMCA-qualifying potash was exempt entirely, and Canadian potash was effectively tariffed for only three days because virtually all Saskatchewan shipments enter duty-free under the agreement. The premiers of Ontario and Saskatchewan nonetheless floated withholding potash or taxing its export during the 2025 fight — proof the weapon has already been brandished once.
The dependency runs the other way in phosphate: Canada produces no phosphate fertilizer and imports roughly 2 million tonnes annually, including about 1.46 million tonnes of MAP, almost all from the United States — at a moment when U.S. farm sector voices are floating phosphate export restrictions and a strategic fertilizer reserve, Mosaic has halved production rates at its Bartow and Faustina plants, and MAP and DAP prices are running about 15% above year-ago levels.
Nitrogen adds a third strand: Canada supplies roughly a quarter of U.S. nitrogen fertilizer imports, more than 8% of American needs.
The analytical payoff is this: the only thing standing between American corn and soybean growers and a tariff on an input with no substitute and no alternative supplier is USMCA preferential treatment itself — and every annual review between now and 2036 puts that shield theoretically in play. Any move to restrict phosphate flows north would invite a potash response south, a tit-for-tat neither country’s farmers can afford but one the annual-review clock makes easier to threaten.
The longer the annual-review limbo persists, the more incentive both countries have to hedge their food-import dependence on the United States — a slow-motion risk that never shows up in a single headline but compounds over crop years.
The investment-certainty problem. The most likely near-term outcome is not a USMCA collapse but a prolonged negotiation that keeps companies cautious.
Triad perspective. Washington gains leverage by refusing to rubber-stamp the extension; Mexico tries to protect its auto base while accommodating U.S. concerns; Canada seeks relief from sectoral tariffs on steel, aluminum, autos and lumber while defending dairy and resisting pressure over its China ties.
Ebrard captured the ambiguity, saying Mexico is “in no rush” but wants to eliminate uncertainties. The deeper issue is that USMCA was supposed to provide a stable, rules-based platform for nearshoring — the legal architecture that justified moving supply chains out of Asia and into North America. By shifting the pact into annual review mode, the U.S. has preserved the agreement legally while weakening the investment certainty that made North American integration work.
Investment-uncertainty upshot: Every board deciding where to site a plant, every lender pricing a 10-year asset in Coahuila or Ontario, now has to discount for the possibility that the rules change at any July review between now and 2036. That discount is the real cost of the leverage strategy — and it accrues whether or not the leverage ever gets used.
Bottom line: USMCA survives, but as a negotiation rather than a settlement. Trade analysts say to watch three markers: whether the July 20 round in Mexico City produces concrete rules-of-origin language; whether Canada and the U.S. open formal text-based talks at all this year; and whether the parties invoke the Article 34.7.4 “at any time” extension as part of a broader package. Until one of those happens, North American trade policy operates on a one-year clock — and agriculture, which depends on the pact’s preferences more than almost any other sector, has the most to lose from a decade of provisional arrangements.
