BUSINESS ACROSS THE BORDER
Pacheco: The worrisome path to the USMCA review
Per an agreement between the three North American trading partners, the U.S.-Mexico-Canada-Agreement, or USMCA, will be reviewed on its six-year anniversary in July 2026. Three paths for the partners lie ahead. They can review the trade agreement and do nothing. They can review the agreement and make agreed-upon changes. This would seem to be the logical route, since trade is not static and trade agreements have to be updated to reflect changes in the global environment. The last choice is the nuclear option, which is to meet in July and one or more of the partners decides to withdraw from the agreement, which was negotiated to have a 16-year initial life.
As we proceed toward July, some worrisome factors pertaining to the USMCA have arisen. On Jan. 13, while touring a Ford factory in Dearborn, Michigan, President Donald Trump commented on the Canadian and Mexican automotive markets, saying, 鈥淭he problem is we don鈥檛 need their product. You know, we don鈥檛 need cars made in Canada. We don鈥檛 need cars made in Mexico. We want to make them here. And that鈥檚 what鈥檚 happening.鈥 At a Detroit Economic Club meeting in Detroit, Michigan, later that day, Trump commented about the USMCA, 鈥淭here鈥檚 no real advantage to it, it鈥檚 irrelevant. Canada would love it. Canada wants it. They need it.鈥
The truth is that no automobile built by any USMCA partner is 100% native to that nation. Vehicles sold by the Big Three U.S. automakers have components and/or labor based in Mexico and Canada. The same is true for vehicles built by our North American neighbors, which can have components and labor based in the U.S. After Trump鈥檚 remarks on the Canadian and Mexican automotive markets, General Motors President Mark Reuss reaffirmed this fact by stating, 鈥淥ur supply chains go all the way through all three countries. It鈥檚 not simple. It鈥檚 very complex,鈥 he said. 鈥淭he whole North American piece of that is a big strength.鈥 Being able to access the best research, engineering, components and labor in the U.S., Canada and Mexico makes North America a competitive place to produce vehicles.
After Trump鈥檚 Feb. 24 State of the Union Address, U.S. Trade Representative Jamison Greer spoke to the Canadian Broadcasting Corp. and indicated that Canada should not expect a future USMCA without additional tariffs imposed on Canada by the U.S. 鈥淲hen we go to other countries, and we make a deal with them, they agree that we can have a tariff on them. If Canada wants to agree that we can have some level of higher tariff on them while they open up their markets to us on things like dairy and other things, then that鈥檚 a helpful conversation,鈥 stated Greer. This point of view seems completely contrary to the very spirit of free-trade agreements, which are negotiated to bring down barriers to trade such as tariffs, in order to spur trade.
Also alarming the USMCA is Canada鈥檚 move to a hardline stance when dealing with the U.S. on trade matters. After reassuming office last year, Trump quickly slapped tariffs on Canadian and Mexican imports. Initially, it was unclear whether these tariffs applied to imports protected by the USMCA. Eventually, it was clarified that the tariffs did not apply to these protected imports. However, using Section 232 tariffs, which a president can invoke if a perceived national security threat presents itself, Trump slapped tariffs on steel and aluminum imports into the U.S. This did include tariffs on these types of products from Canada and Mexico. Approximately 98% of Canadian exports to the U.S. can claim some type of preferential treatment under the USMCA.
Canadians were outraged by these tariffs and by Trump continuously referring to Canada as the 51st state. A recent poll by the Angus Reid Institute revealed that 67% of Canadian adults preferred that their country take a harder-line stance on trade negotiations with the U.S., even if it angers the Trump administration. This stance is being echoed by Canadian Prime Minister Mark Carney, who stated that both the U.S. and Canada have what he calls 鈥渢rade irritants鈥 that cause trade friction or disputes. However, Carney also stated that 鈥淚t鈥檚 not a case of the 近距离内射合集 States dictating the terms. We have the negotiations. We can come to a mutually successful outcome. It will take some time.鈥
Carney emphasized that in any negotiations, people ask for concessions, but that Canada has its own negotiating strengths and therefore has its own options, which it was diversifying. It sounds like Canada is resigned and ready for a head-to-head battle come July. It is probable that the Trump administration, which chooses bully tactics when negotiating, didn鈥檛 expect its treatment of Canada to strengthen the country鈥檚 resolve as it pertains to the UMCA.
Preliminary talks by teams representing the USMCA partners are already taking place as a prelude to the July review. Let鈥檚 hope that these meetings help de-escalate the rhetoric and lead to a productive review and negotiation.
Jerry Pacheco is the executive director of the nonprofit International Business Accelerator. He can be reached at (575) 589-2200 or jerry@nmiba.com.