Podcast: Inside the 2026 USMCA renewal talks and their impact on North American manufacturing

JJ: To this point, have there been any surprises for you in what we're hearing, what you're hearing about how negotiations are going, or pre-negotiations maybe is the better wording? 

PC: I would say the big surprise is in addition to the US government moving forward negotiating bilaterally with Mexico, so this is bilateral negotiations in relation to a trilateral treaty. The other big surprise is the timing aspect, and I know that's one of the main things you wanted to talk about today, so I definitely wanted to touch on that. So we know we're heading up to this July 1 deadline, which is through the text of the treaty, the deadline for the USMCA six-year review. It's become pretty clear at this point that the parties are going to blow right past that July 1 deadline and continue these negotiations after July 1, so the question then becomes, what happens on July 1 if we don't get a an agreement to renew the treaty. So, a few things can happen on that July 1 date. One, the U.S. government can decide to withdraw from the treaty. I think that's definitely a possibility. The second is that the U.S. government can decide enough changes have been, have been made that it's happy with the agreement, and it signs up for another 16-year term. It's a possibility. I don't think that's very likely. And then, third, and I think this is the most likely scenario, is that the parties go right past July 1 and continue negotiating. What happens then is that the text of the treaty, as it is on July 1, remains in place. The treaty remains in force. So the short answer is not much would change on July 1 if the parties don't make any changes and continue negotiating. From there, we would move into a posture of year on year annual negotiations until the three parties agree to renew the treaty or one of the parties withdraws from the treaty, and it does seem like that's the direction we're headed at this point.

JJ: Wait, are you saying they could agree to blow past the deadline and then revisit this like every year? Is that what...?

PC: That's right. So, if you remember, the USMCA has a 16-year duration, and this first review is only six years in, so there's still 10 years of the treaty left, no matter what happens on July 1. So the treaty remains in force after July 1, even if the parties haven't renewed for another 16 year term, and then the treaty says what happens is each year there's another one of these annual reviews until until all the parties renew the treaty, so the short answer is the negotiations just continue after July 1, and it seems like the U.S. government, in particular, is completely comfortable with that eventuality, because they've actually scheduled further negotiating around with Mexico all the way through July 20, so beyond July 1, so it seems pretty clear at this point that negotiations are going to continue for some time.

JJ: Have you heard anything about negotiations on specific aspects of it that are of interest to manufacturers?

PC: Absolutely, yeah, we have heard some interesting news that's come out of the first official negotiating round between the U.S. government and Mexico. This was in Mexico City two or three weeks ago now, and we learned about some of the initial U.S. negotiating positions, and they were fairly aggressive. So, in particular, we learned about two specific points. One was that the U.S. government is proposed to increase the requirement for regional value content in automobiles. What that means is the percentage of the value in a traded automobile that is derived from North America, so from Canada, Mexico, or the United States, there's a certain percentage of each vehicle that needs to meet that threshold in order to be traded duty free under USMCA. Right now, that's at 75%. The U.S. government has proposed to raise that to 82%. That might not sound like a lot, but for these, for these manufacturers who built their supply chains to meet that 75% threshold, this would be a big change. The second is that the U.S. government has proposed, in addition to this regional value content requirement, a U.S. content requirement, so there would need to be a certain percentage of the value in every traded automobile, a certain percentage of that value would have to come from the United States, specifically, not just the region. This is a push from the U.S. government, of course, to increase manufacturing in the automotive space within the United States, that's another pretty aggressive position from the U.S. government. So, we'll have to see how those proposals fly with Mexico and Canada, but it does suggest that the U.S. negotiators are approaching these negotiations with a lot of confidence. They feel like they're coming into these negotiations from a place of strength.

JJ: Has there been anything else that surprised you, or you're just finding interesting as it moves along?

PC: Yeah, so there's been the fact that the U.S. and Mexico are proceeding on their own. That's interesting. This timing issue has been interesting, and then maybe one other thing to point out is that I've been surprised that Mexico [Childress meant to say Canada] hasn't been more aggressive in terms of getting back to the negotiating table. I would have thought they would have done more to make sure that they, that these bilateral negotiations don't proceed too far without them, is the big worry from the Canadian government perspective, or if I was putting myself in the shoes of the Canadian government, would be that the United States and Mexico go off on their own, reach agreement on, bilaterally on changes to this trilateral agreement, and then show up in Ottawa one day and say this is what we've agreed to, you have to take it or leave it, and I think if that occurs, the Canadian government is going to be under a lot of pressure to take whatever deal the United States and Mexico struck, because I don't think at this point it's a viable option for the Canadian government to walk away from this trade agreement altogether. We know that the Canadian government has been aggressively trying to diversify its trade pathways through discussions with EU and China, for instance, so this has been a big move in Ottawa that they're trying to diversify their trade, but for now it remains the case that the vast majority of their trade is still within North America, and as long as that's the case, I think the Canadian government's going to have to do everything they can to remain within the confines of the USMCA, and if that's the reality for them, then they really need to do what they can to get back to the negotiating table and make sure that they're a part of these negotiations.

JJ: Okay, so just to clarify, initially you said that you said I've been surprised that Mexico hasn't been more aggressive in getting back to the negotiating table. You meant Canada.

PC: I did. Yeah, apologies. I must have misspoken. 

JJ: No, I just want to make sure that that we have it correct. Okay. Well, I think that's a good place to leave it for today. It will be interesting to see how things play out. And thank you, Patrick, for your time. And I'd also like to thank our audience for your attention.

About the Podcast
Great Question: A Manufacturing Podcast offers news and information for the people who make, store and move things and those who manage and maintain the facilities where that work gets done. Manufacturers from chemical producers to automakers to machine shops can listen for critical insights into the technologies, economic conditions and best practices that can influence how to best run facilities to reach operational excellence.

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