The United States has announced that it will not extend the 2018 U.S.–Canada–Mexico free trade agreement (USMCA). Instead, the agreement will be reviewed over the next ten years before expiring — unless the three countries agree to renew it with changes.1

All three parties have benefitted from the USMCA in meaningful ways, and most trade experts view the agreement as an improvement over the North American Free Trade Agreement of 1994, especially in the areas of intellectual property, digital trade, labor rights, environmental standards, and rules of origin for various products, particularly automobiles.2 So the question is: why this break-up now?

Several issues are at play in this latest announcement by the Trump administration.

  1. A deal done is a deal less interesting. President Trump considers himself a master negotiator, and a concluded deal is less satisfying than one still under negotiation.3 Hence the impulse to break an agreement he himself negotiated only six years ago.

  2. Tariffs as the universal tool. The administration has certain political goals — first and foremost restoring industrial manufacturing to the U.S. — which the president believes can be accomplished through tariffs. The problem is that tariffs cannot build factories by themselves; that requires other incentives which do not currently exist. But for this administration, tariffs are the hammer, and everything else looks like a nail.

  3. Conflicting objectives. The U.S. is using the USMCA to pursue goals that pull against each other. On one hand, it wants to strengthen North American rules of origin for autos and other industrial goods to keep other countries — particularly China — from reaching the U.S. market through Mexico and Canada. On the other, it is unhappy about growing goods-trade deficits with Mexico and Canada, which ran to $197 billion and $48.3 billion respectively in 2025.4 The deficit with Canada is driven mainly by oil imports, but the growing deficit with Mexico is due in part to companies shifting supply chains away from China to Mexico in response to high U.S. tariffs on Chinese goods. Without those high tariffs, Chinese companies seeking to sell into the U.S. market would have far less incentive to manufacture in Mexico in the first place. This use of tariffs as a coercive measure has been a staple of the administration's trade policy since Trump's first term.5

One can only simultaneously increase domestic manufacturing and reduce trade deficits by breaking international supply chains and running an autarkic economy — something few countries have achieved without serious economic shortfalls. No country has everything its economy and citizenry need and want, which is why trade exists in the first place. When the U.S. significantly disrupted global trade by unilaterally imposing tariffs on most of the world, trade — like water — sought ways around those barriers.

And that is the tell. As Reuters has reported, "Trump has already unilaterally ended the duty-free status of USMCA by imposing tariffs of 25% on Canadian and Mexican autos and parts and 50% on steel and aluminum from the two countries."6 In other words, the substance of the agreement has already been hollowed out by the very administration now declining to extend it. Read that way, the USMCA is less an agreement with problems that revision could not resolve than a victim of a presidential short attention span.

Notes

  1. David Lawder, "US seen not extending USMCA, starting decade-long countdown to end trade pact," Reuters, 30 June 2026, reuters.com; David Lawder, "US declines to extend North American trade deal, starting clock to end it while seeking changes," Reuters, 1 July 2026, reuters.com; "Mexico looking to address US dependence concerns in USMCA talks, Ebrard says," Reuters, 1 July 2026, reuters.com
  2. Simon Lester, "Trump Administration Decides Not To Extend USMCA for Another Term: What Does That Mean Exactly?" IELP, 1 July 2026, ielp.worldtradelaw.net; Branden Kelly, Jesus Cañas, and Luis Bernardo Torres Ruiz, "USMCA has strengthened economic integration in North America," Brookings Institution, 4 March 2026, brookings.edu; David A. Gantz and Tony Payan, "Strategic Priorities for the 2026 USMCA Review," Rice University's Baker Institute for Public Policy, 2 December 2025, doi.org
  3. Will Weissert, "Analysis: Trump embraces 'Great Equivocator' role sending mixed signals that vex markets and allies," Associated Press, 2 July 2026, apnews.com; Rob Eastwoode, "Why Trump refuses to renew USMCA and what it means for North America," MSN, 2 July 2026, msn.com
  4. David Lawder, "US declines to extend North American trade deal, starting clock to end it while seeking changes," Reuters, 1 July 2026, reuters.com
  5. Ryan Hass and Abraham Denmark, "More pain than gain: How the US-China trade war hurt America," Brookings Institution, 7 August 2020, brookings.edu; Paul Wiseman, "Trump favors huge new tariffs. How do they work?" PBS News, 27 September 2024, pbs.org
  6. David Lawder, "US seen not extending USMCA, starting decade-long countdown to end trade pact," Reuters, 30 June 2026, reuters.com