SMA: Don't panic - The USMCA clock has not run out

The July 1 deadline came and went, and the headlines were predictably alarming. The United States declined to renew the United States-Mexico-Canada Agreement (USMCA), the trade framework that has governed North American commerce since it replaced NAFTA in 2020. Some observers worried it could signal the imminent end of the agreement. It did not.

Here is what happened: Under article 34.7 of the agreement, the three nations held their mandatory six-year joint review. The United States announced  that it “did not agree to renew the USMCA in its current form.”

That phrase may sound ominous, but the agreement remains in effect. All preferential tariffs, rules of origin, investment protections, and dispute settlement mechanisms are fully operative. The USMCA does not expire until July 1, 2036. The United States merely chose not to exercise the option to extend it for an additional 16 years beyond that date. That is a negotiating posture, not a trade collapse. It paves the way for negotiations on improvements to the agreement.

What replaces the one-time extension decision is a series of joint reviews each year through 2036. Crucially, the three heads of government may still confirm a 16-year extension in writing at any time and with no formal renegotiation required. From the SMA’s perspective, 10 annual review cycles represent 10 opportunities to get this right.

It is important to note that a more productive negotiating architecture could be a bilateral one. The United States and Mexico have completed two rounds of substantive talks, with a third occurring in Mexico City this week. These discussions have covered automotive rules of origin, steel and aluminum trade, economic security, and agricultural matters. Bilateral negotiations are more nimble, more focused, and less onerous than a full trilateral process. A similar bilateral process between the United States and Canada could follow in parallel, as could a Canada-Mexico negotiation. Three bilateral threads are easier to advance than one knotted trilateral rope.

On steel specifically, a tariff-based regime continues to make more sense than Canada’s preferred system of quotas. The Canadian steel quota system would create a bureaucratic mess, with product-specific allocations, retroactive adjustments, and exclusion request procedures that shift costs onto firms rather than creating predictable market signals. The Section 232 national security tariffs and Section 301 trade remedy duties, on the other hand, have the benefit of transparency and predictability. Industries can price in a tariff; they cannot price in an opaque quota that resets annually.

The negotiations were not helped by Ottawa’s decision, in the months leading up to the July review, to sign a trade arrangement with China covering electric vehicles. Prime Minister Mark Carney defended the deal as a hedge against US unpredictability. But Washington’s concern was straightforward: a potential USMCA backdoor that channels Chinese-made EVs into the American market undercuts the supply-chain integrity the agreement was designed to protect. Whatever its merits as diversification strategy, the timing was tone-deaf.

For now, the prospects for a renegotiated trade deal with Canada look dim. US Trade Representative Jamieson Greer says US and Canadian negotiators talk frequently but have made little progress. Still, there are grounds for optimism.

Last month, I noted that in a June 15 Wall Street Journal article, Canadian Ambassador to the United States Mark Wiseman, speaking at a Bank of Montreal event hosted by CEO Darryl White, offered the clearest statement of where Canadian interests genuinely lie. “We, as Canadians, are privileged to be next door to the world’s most dynamic economy,” Wiseman said. “We should not seek to trade that for anything.” This is not the language of a country wanting to decouple. It is the language of a neighbor who understands the stakes — and wants a deal.

Canada and Mexico, our biggest steel trading partners, are dependent on US trade. The sooner they come to grips with that reality and commit to pursuing fair, meaningful improvements to the USMCA, the sooner we can realize a rationalized trading relationship in North America that benefits all three countries. The deadline may have passed, but the work continues.