If USMCA is not renewed, analysts expect uncertainty for businesses
US President Donald Trump has warned he would ‘rather not have’ the free-trade agreement ahead of its July 1 review. Vancouver, Canada – As the
US President Donald Trump has warned he would ‘rather not have’ the free-trade agreement ahead of its July 1 review. Vancouver, Canada – As the trade agreement between the United States, Mexico and Canada comes up for its first joint mandatory review on July 1, experts say the chances of it being renewed have reduced, given how mercurial US President Donald Trump can be. Trump had pushed for a new deal during his first term to replace the North America Free Trade Agreement, or NAFTA. The result was the USMCA agreement, which came into effect on July 1, 2020, and is slated to expire after 16 years. Now, on the USMCA’s sixth anniversary, the three countries involved are set to decide whether the trade deal should continue for another 16 years. But it is unclear what the outcome of the review process might be, and critics warn that the uncertainty it creates could generate complications for businesses. If all three countries fail to commit to an extension, it triggers an annual review process, which would put the USMCA up for debate every year until 2036. “We may get mandatory annual reviews, but that also means that uncertainty prevails, and that’s a negative for decision-making for businesses,” said Tony Stillo, director of Canada Economics at Oxford Economics, an advisory firm. “It’s a definite dampener, for sure.” That, however, is the situation analysts currently expect to result from the July review. “The most likely scenario is that it will go into an annual renewal process,” said Vina Nadjibulla, vice president and head of research at the Asia Pacific Foundation of Canada, a nonprofit think tank. But she added that the dynamics of July’s negotiations remain unclear. She pointed to a lingering question: “Is nothing agreed till everything is agreed, or is incremental change acceptable?” In the worst case, any party could give six months’ notice and cancel the trade agreement altogether.
Nadjibulla noted that Trump might be leaning in that direction. “He has said he wished [the USMCA] didn’t exist,” she said. Trump himself told reporters this month that he felt the US did not need the trade deal. “I don’t know that I’m going to renew it,” he said on June 10, before signalling he is open to negotiation with the deal’s other parties. “We’re talking to them. We’ll see if we do something.” A week later, Trump voiced further ambiguity about the US stance. “I would rather not have the agreement, but I may sign it,” he said during his visit to Paris. Protection against tariffs? Unlike Trump, the leaders of Canada and Mexico have said they want the trade agreement to continue. The USMCA has been particularly beneficial to the two countries in the wake of the tariffs that Trump unleashed last year, after taking office for a second term. Goods traded under the agreement have been largely exempt from the added taxes. But Trump has used different legal tools to tax even USMCA-compliant goods. His administration has, for example, turned to Section 232 of the Trade Expansion Act, which allows economic penalties on products that “threaten to impair” US security. He has invoked that law to impose 50 percent tariffs on Canadian steel, aluminium, and copper, as well as 25 percent tariffs on non-US content of USMCA-compliant automobiles. There has also been a 10 percent tax added to some lumber products. Products outside the USMCA’s protections were subject to particularly steep tariffs, though. The Trump administration formerly used the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs worldwide, until the US Supreme Court ruled such taxes to be unconstitutional in February. But the White House responded to the Supreme Court ruling by issuing a 10 percent global tariff, using Section 122 of the Trade Act, which allows the US to address “large and serious” balance-of-payments deficits.
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