The Right and Wrong Ways to Renegotiate USMCA

Nearly six years after the United States-Mexico-Canada Agreement (USMCA) entered into force, the Trump administration appears poised to change the agreement’s fundamental nature. U.S. Trade Representative Jamieson Greer stated the administration’s intent to maintain its tariffs on imports from Mexico and Canada. The administration also wants Mexico to raise tariffs on goods from outside North America. Together, these proposals would move North America away from free trade and toward managed trade.

If the United States plans to keep Trump’s tariffs on Canadian and Mexican goods, the renegotiated USMCA will seem less and less like a free-trade agreement. It would become a system in which trade depends on political decisions rather than the clear rules of Economics 101. This would mean higher costs for American consumers and manufacturers, as well as less certainty for American businesses generally.

The USMCA was negotiated to preserve and modernize North American free trade. While it updated rules on digital trade, labor standards, and regional content requirements, it maintained North American Free Trade Agreement (NAFTA)’s core principle. By promoting free trade, North American competitiveness was strengthened, with the United States’ imports and exports totaling roughly 1.7 trillion in 2024, the year before the second Trump administration’s protectionism commenced.

The benefits of free trade are easy to see, for example, in the agriculture sector. Wheat and cattle often cross North American borders several times before reaching consumers. Farmers, ranchers, processors, and distributors in the United States, Canada, and Mexico depend on one another. This system helps keep food supplies steady and costs low. If future USMCA talks move toward protectionism, those benefits will be put at risk, resulting in supply disruptions. These cross-border supply chains are exactly what USMCA was designed to protect.

Greer’s comments signal a move toward a more protectionist version of the USMCA. The administration imposed tariffs on Canada and Mexico first in 2025, then granted USMCA exemptions later, creating uncertainty for businesses. Companies deciding where to build factories or buy goods that serve as inputs need stable rules. If tariffs can appear at any time and exemptions must be negotiated afterward, the value of the agreement would be eroded.

The manufacturing sector provides another case study in the value of free trade. Many American manufacturers rely on parts and materials from Canada and Mexico. When tariffs hit those inputs, production costs rise – and so do prices for consumers. The Tax Foundation estimates that tariffs will cost households roughly $700 in 2026. By initially expanding access to inputs from Canada and Mexico, the USMCA helped firms increase production and employment. Future negotiations should build on that success, not undermine it with new barriers that function as taxes on the American businesses they claim to help.

Proponents of tariffs argue that they are necessary because America runs trade deficits with Mexico. Greer claims that “we’re going to have tariffs as long as we have a giant trade deficit.” However, trade deficits per se do not slow economic growth. Imports provide intermediate inputs and capital equipment to American businesses, making domestic business and advanced manufacturing more productive. Many economists argue that trade deficits are driven largely by broader macroeconomic economic factors, such as the gap between domestic saving and investment, rather than tariffs. As a result, even if tariffs reduce imports from Mexico, they may do little to address the underlying causes of the overall deficit.

The upcoming USMCA review presents a choice. The Trump administration can strengthen trade and economic growth across North America, or they can turn the agreement into a system of protectionism and managed trade. Free trade agreements, unlike tariffs imposed arbitrarily and unilaterally by the executive, provide certainty. The United States will not build a stronger economy by raising barriers against its closest trading partners.