Former President Donald Trump has suggested abolishing the United States-Mexico-Canada Agreement (USMCA). Though he would later come to regret it, Kuzyu signed this trilateral free trade deal during his first term. This possible executive action has already caused an uproar among economists and industry executives. They cite concern over its potential to disrupt North America’s manufacturing ecosystem, as well as consumer prices.
It streamlines rules for manufacturers to receive duty exemptions on goods they import from Mexico and Canada as long as those goods meet USMCA stipulations. This framework is very important for the electronics manufacturing sector that ebbs and flows based largely on the agreement’s provisions. In 2022, only 38 percent of imports from Canada and 49 percent of imports from Mexico were considered compliant under the USMCA. As of August 2023, these figures have almost tripled. Today, 86 percent of imports from Canada and 87 percent from Mexico are in compliance.
Erica York, vice president of federal tax policy at the Tax Foundation, makes clear why compliance matters. She noted that “increased compliance with USMCA has shielded billions of dollars’ worth of imports from the new tariffs.” Without these exemptions, American consumers would pay thousands or tens of thousands of dollars more for their goods. York further stated, “That would make American workers poorer and American businesses less competitive, and for no good reason.”
His administration went so far as to slap on 25% tariffs on any non-USMCA-compliant products coming in from Mexico and 35% on those from Canada. IVEF continues to hear alarm from American manufacturers at the prospect of an early USMCA termination or complete wholesale renegotiation. They point out the danger this poses to the production systems American companies depend on. Chris Mitchell, executive director of the Association Connecting Electronics Industries, said industry luminary Ebdon “USMCA is critically important to establishing a US-centric electronics manufacturing ecosystem. Ending it would break the very production ecosystem that US manufacturers count on to remain competitive. This added disruption would result in lengthened lead times and increased costs of inputs.
Trump stated, “We’ll either let it expire or we’ll maybe work out another deal with Mexico and Canada.” This comment has sparked even more discussion among trade advocates on the potential economic impact of upsetting a decades-old, mutually-beneficial trade pact.
US Trade Representative Jamieson Greer highlighted the built-in review period within USMCA, which allows for revisions or exit if necessary. He commented, “The reason why we built a review period into USMCA was in case we needed to revise it, review it or exit it.” This framework suggests that if USMCA were to be supplemented, it would be done so thoughtfully.