The start of July marked four years since the implementation of the US-Mexico-Canada Agreement (USMCA), one of the world's most significant free trade agreements (FTAs). Intended to replace the previous NAFTA deal, which had become significantly out of step with modern trade practices, it has already had to withstand a turbulent global environment, with economic shocks such as the Covid-19 pandemic, tensions with China and Russia and a sharp rise in inflation.
With the agreement up for review in 2026, attention is starting to turn to the successes there have been so far, as well as what adjustments and improvements may need to be made in order to ensure easy, tariff-free trade between the US, Mexico and Canada is able to continue for the long term. So what are some of the key things to know about the agreement as it turns four?
Automotive sector among key beneficiaries
Overall, a report by the Wilson Center found that goods and services trade within North America has increased by 50 percent over the last four years, while investment in new ventures has grown by 136 percent.
One key goal of the USMCA was to provide more support for an increasingly interconnected automotive sector in North America, and on this front, the FTA appears to have seen some of its strongest successes.
A recent report from the Office of the US Trade Representative found that the FTA has had a "significantly positive economic impact" on the sector in North America. These benefits are not solely restricted to automotive manufacturers, but also a wider variety of firms in the supply chain.
For instance, rules of origin within the deal mandate that at least 70 percent of steel and aluminum used in the production of vehicles must originate in the bloc in order to benefit from tariff-free trade, which has provided incentives for automakers to source components domestically, thereby supporting the mining and metals production sectors.
Taking steps to counter Chinese tariff evasion
However, some concerns have been raised about the potential for companies in China to take advantage of the USMCA to bypass US tariffs by shipping goods via Mexico. This is especially the case for steel and aluminum tariffs of 25 percent and ten percent respectively.
This has raised concern in some quarters, with Lourenco Goncalves, CEO and chairman of US steelmaker Cleveland-Cliffs describing Mexico as a "transshipment ground" for Chinese goods.
To counter this, the US and Mexico announced a new agreement in July that will seek to close this loophole. Importers of the products into the US will now need to provide a certificate of analysis to Customs and Border Protection showing the country of origin for the metals, while Mexico has agreed to require more information from importers on the origin of key products.
What are the next steps for USMCA?
The mandated six-year review in 2026 will be the next big test for USMCA, with several commentators warning that adjustments will need to be made in order to keep up with a changing environment.
For instance, automakers have urged greater flexibility on issues such as electric vehicle batteries, as domestic manufacturing for these critical components remains in its infancy.
The role of Mexico in the agreement is also likely to come under scrutiny. The country is set to implement a range of policies that would have a direct impact on USMCA, such as judicial reforms that may affect the independence of this branch and, in turn, have an impact on USMCA's performance.
Much may also depend on the outcomes of upcoming elections in the US and Canada prior to the review. For instance, in the US, Republican candidate Donald Trump has pledged new tariffs on all imports, which may significantly impact future negotiations.
