USMCA faces unravel risk

Tariffs are back at the center of North American politics — and this time the risk is bigger than one more round of duties. The real issue is the trade pact underneath them. USMCA was supposed to give the U.S., Canada, and Mexico a stable rulebook for cars, steel, agriculture, and cross-border supply chains. Instead, with the treaty’s mandatory review coming up on July 1, 2026, Washington and Ottawa are turning that review into a political showdown. (csis.org) ### What is actually at risk? USMCA is the agreement that replaced NAFTA. It covers nearly $2 trillion in annual trade and sets the rules that let companies build products across all three countries without constantly paying new tariffs or rewriting contracts. The review built into the deal was meant to check whether the pact should be exten(csis.org) So the danger is not “trade stops tomorrow.” The danger is that the review stops being a technical update and becomes leverage for a broader political fight. ### Why is Canada so angry? Because Canada says the U.S. is already violating the spirit — and in some cases the text — of the pact with tariffs on key sectors. Canada’s government sti(csis.org)after it removed many broader retaliatory tariffs in September 2025. On autos, Canada is still applying a 25% tariff to non-CUSMA-compliant U.S. vehicles and to the non-Canadian, non-Mexican content of compliant U.S. vehicles. (canada.ca) That is why Mark Carney’s language got so blunt last week. He said Canada would not let Washington dictate the terms of the review. That was not just campaign-style chest-thumping — it was Ottawa signaling that the review cannot be separated from the tariff fight already underway. (usn([canada.ca)## Why is Washington pushing so hard? Because the Trump administration is using trade policy much more aggressively than the original USMCA framework assumed. Section 232 tariffs and investigations now cover steel, aluminum, copper, autos and auto parts, timber, semiconductors, phar(usnews.com)ally in place. (cov.com) And U.S. Trade Representative Jamieson Greer has been pretty open that a simple rollover is not the goal. He has said renegotiation is necessary, has floated tougher structural demands, and has signaled the process could run past July 1. Late last year he even left open the possibility of exiting the pact entirely. (grantthornton.com) ### Does July 1 decide everything? Not exactly. July 1 is the formal decision point for the three governments’ trade ministers. But the catch is that the agreement does not force a clean, final answer that day. Politics can drag the process out. That means no dramatic overnight collapse is required for companies to start getting nervous. (csis.org) In practice, prolonged ambiguity is its own problem. Manufacturers can handle tariffs they understand. They hate tariff rules that might change again before the factory line is even retooled. ### Why do companies care so much? Because North American manufacturing is deeply integrated. A vehicle, engine, battery pack, or industrial machine c(csis.org)rust the rules of origin, tariff exemptions, and dispute process will still be there next year. (csis.org) If that confidence cracks, companies start hedging — shifting sourcing, delaying investment, or building more redundancy into supply chains. That raises costs even before any formal breakup happens. ### Is an actual unraveling plausible? Yes — but “unraveling” probably looks messy, not cinematic. More likely than a single dramatic withdrawa(csis.org)l side deals, and less faith that the three-country system still works as designed. Axios captured that mood today — trade lawyers are no longer treating an implosion as unthinkable. (axios.com) ### Bottom line The immediate fight is about tariffs and political leverage. But the bigger story is that USMCA’s built-in review is no longer a routine maintenance check. It is turning into a test of whether North America still wants one trade system — or three countries improvising around each other. (csis.org)