The future of the United States-Mexico-Canada Agreement (USMCA) hangs in the balance. Former President Donald Trump has suggested he would renegotiate the trade pact. This trilateral free-trade agreement, signed during his first term, has played a crucial role in stabilizing prices across North America.
Under the USMCA, imports from Mexico and Canada can avoid many different tariffs. They don’t have to do anything beyond the minimum outlined in the agreement. This exemption has been a key part in keeping prices low for American consumers. It has provided a substantial advantage to the sectors including and especially electronics and automotive manufacturing. Recent statistics underline the agreement’s impact: 38% of imports from Canada and 49% from Mexico were compliant with USMCA regulations last year. By August, those compliance rates increased dramatically to 86% for Canada and 87% for Mexico.
Trump remarked on the potential fate of USMCA, stating, “We’ll either let it expire or we’ll maybe work out another deal with Mexico and Canada.” We believe such an action would have far-reaching positive impacts across the North American economy.
Removing USMCA would upend the carefully cultivated production chain that U.S. auto manufacturers rely upon. The deal offers important certainty that safeguards billions of dollars’ worth of American imports from unexpected tariffs. This shield allows them to invest in innovation while shielding prices from skyrocketing for consumers. According to Erica York, vice president of federal tax policy at the Tax Foundation, “Increased compliance with USMCA has shielded billions of dollars’ worth of imports from the new tariffs.”
An actual termination of USMCA would leave businesses unable to plan and in complete disarray. Manufacturers, in turn, could experience rising lead times on and rising costs of inputs. Chris Mitchell, an industry expert, emphasized this concern, stating, “USMCA is a cornerstone of North America’s electronics manufacturing ecosystem. Terminating it would disrupt the production system that US manufacturers rely on, leading to longer lead times and higher input costs.”
US Trade Representative Jamieson Greer weighed in on the discussion, highlighting that “the reason why we built a review period into USMCA was in case we needed to revise it, review it or exit it.” We don’t know what the future holds for that agreement, but all is not lost. We’ve got these mechanisms, better to evaluate and change them while they’re fresh and ready.
Beyond the direct impact of consumer electronics, the overarching effect of USMCA is critical as it covers numerous goods, especially notable that it includes vehicles. The deal has helped keep prices down for Americans, despite earlier warnings of runaway inflation.