Key Takeaways:
The US and Mexico opened formal negotiations to revamp the USMCA this week, with Washington making clear that the era of tariff-free North American trade is over.
"The US is going to have tariffs. Even with somebody like Mexico, or other countries in our own hemisphere, we're going to have tariffs as long as we have a giant trade deficit," US Trade Representative Jamieson Greer said Tuesday at a Council on Foreign Relations event in Washington, stripping away any ambiguity about the six-year-old pact's future.
The first of three scheduled negotiating rounds began Thursday in Mexico City, led by Deputy USTR Jeffrey Goettman, with talks focused on economic security and rules of origin for industrial goods. A second round is set for Washington on June 16-17, followed by a third in Mexico City the week of July 20. Canada was pointedly excluded from the process, with Greer saying Ottawa's decision to retaliate against US tariffs — rather than negotiate — had created "significant" differences that would be difficult to resolve.
The stakes are measured in billions. Mexico's steel exports to the US fell 36.6% in 2025 to $2.24bn after tariffs were raised from 25% to 50% in June of that year, knocking Mexico from third to fifth among US steel suppliers and cutting its market share from 11% to 9%, according to trade data. Canada's steel exports fell 36.5% to $45.6bn over the same period. The previous 25% tariff on steel, imposed in 2018 under Section 232, had already reduced Mexican steel shipments by roughly 15% in its first year before the 2025 escalation compounded the damage.
Rules of origin emerge as central battleground
Washington's core demand centers on requiring a US-specific minimum level of content in cars and trucks built in Mexico, a shift that would fundamentally alter the supply chains underpinning North America's roughly $1.6 trillion in trilateral trade. Greer said the rules of origin changes are designed to shift more production to the US specifically, dismissing Canadian automotive manufacturing as a product of "government mandate" rather than natural advantage.
"We want to build cars here," Greer said.
Mexican Economy Secretary Marcelo Ebrard pushed back, calling the 50% tariff on steel and aluminum "unsustainable" and arguing that automotive tariffs must be considered as part of a "systemic approach" that includes regional content rules. He acknowledged earlier this month that a clean July 1 closure was unlikely and that negotiations could drag on for years.
Industry groups are watching closely. "It's critical that we ensure further changes to automotive rules of origin do not undermine the sector's competitiveness, especially considering that these rules were changed significantly during the last negotiation," said Brad Wood, senior director of trade and innovation policy at the National Foreign Trade Council, which represents companies including automakers. "A final agreement must acknowledge manufacturing and global supply chain realities, mitigate unintended consequences, and include appropriate phase-in periods."
Canada isolated as Mexico hedges bets
Canada finds itself in a distinctly different position. Greer drew a direct parallel between Ottawa and Beijing, noting that only Canada and China had retaliated against US tariffs rather than accepting them. Several Canadian provinces have pulled US liquor from store shelves, and Prime Minister Mark Carney said Wednesday that Canada's military would buy Swedish early warning radar aircraft from Saab rather than from Boeing.
For Mexico, the week's talks represent an opportunity to shape the new framework before positions harden. The EU-Mexico trade deal signed last week and a bilateral Canada mission in May reflect the same underlying calculation: that the familiar architecture of North American trade is being rebuilt on different foundations, and Mexico needs more options than it currently has.
The outcome of these negotiations will determine whether North America's integrated manufacturing base — built over three decades under NAFTA and its successor — can survive a fundamental redesign, or whether the region fragments into competing national supply chains. With roughly $1.6 trillion in annual trade at stake and no clear deadline for a final deal, the uncertainty alone is reshaping investment decisions across the automotive, steel, and industrial sectors.
This article is for informational purposes only and does not constitute investment advice.
