The future of North America's largest free trade agreement has become increasingly uncertain after the US declined to renew the US-Mexico-Canada Agreement (USMCA) during its first mandatory six-year review.
While the USMCA remains fully in force, the review process has entered a new phase that could shape trade across North America for years to come.
What changed and what will happen?
Under the terms of the USMCA, the three countries were required to meet in July 2026 to decide whether to extend the agreement for another 16 years. Mexico and Canada indicated they were prepared to renew the agreement. The US did not.
Rather than ending the agreement, the decision automatically triggers annual joint reviews until either all three countries agree to extend it or the agreement reaches its current expiry date in 2036. During this period, the USMCA continues to apply as normal.
Here are what the potential outcomes of this may look like.
Option one: A renegotiated agreement
The most likely outcome is that the USMCA is renegotiated rather than abandoned. The Trump administration has made clear that it wants significant changes to the agreement rather than a simple extension. Areas under discussion include stricter automotive rules of origin, increased US manufacturing content and revisions to labor and environmental provisions. Negotiations with Mexico are already underway, while discussions with Canada are expected to follow.
A revised agreement would preserve the integrated North American market while allowing governments to update rules in response to changing political and economic priorities. Although negotiations may prove difficult, businesses generally favor this outcome because it maintains a stable legal framework for regional trade.
Option two: Years of annual extensions
Another possibility is that negotiations continue for several years without reaching a comprehensive agreement.
The structure of the review mechanism allows annual discussions to continue until 2036, creating the possibility of an extended period of incremental negotiations rather than a single, decisive outcome. Recent comments from US Trade Representative Jamieson Greer suggest talks could continue into 2027, with interim agreements reached before a broader settlement.
For traders, this would preserve tariff preferences while prolonging uncertainty around future investment decisions. Companies may delay long-term manufacturing projects or supply chain investments if they remain unsure what the final rules will look like.
Option three: US withdrawal
The most disruptive scenario would be a formal US withdrawal from the agreement. Unlike the current review process, withdrawal would require the US to invoke the agreement's exit provisions. While this remains legally possible, it would represent a significant escalation beyond the current review process.
Without US participation, businesses could lose preferential tariff treatment under the agreement and instead trade under World Trade Organization rules or any replacement arrangements negotiated between the countries.
Given the highly integrated nature of North American manufacturing – particularly in the automotive, agriculture and electronics sectors – such a move would create substantial disruption. Supply chains built around tariff-free trade and cross-border production would face higher costs, additional customs requirements and greater regulatory complexity.
While political rhetoric has occasionally suggested withdrawal remains an option, most analysts view a complete exit as less likely than continued negotiation.
Why businesses should pay attention
The USMCA supports around $1.6 trillion in annual trade between the US, Canada and Mexico, making it one of the world's most economically significant regional trade agreements.
Even if tariff preferences remain unchanged in the short term, uncertainty itself carries costs. Manufacturers planning new facilities, exporters considering long-term contracts and companies managing cross-border supply chains all depend on predictable trade rules.
What comes next?
For now, the USMCA remains fully operational, and businesses can continue trading under its existing provisions. However, the agreement has entered a prolonged period of negotiation that is likely to shape North American trade policy for the rest of the decade.
For traders, the priority is preparing for change. Monitoring annual review outcomes, assessing exposure to potential rule changes and maintaining flexible supply chains will be increasingly important as negotiations continue.