If the USMCA is not revised, experts expect business uncertainty | Donald Trump News

Vancouver, Canada – As the trade agreement between the United States, Mexico and Canada comes up for the first official review on July 1, experts say that the chances of a renewal have decreased, considering the state of US President Donald Trump.

Trump pushed for a new deal during his first term to replace the North American Free Trade Agreement, or NAFTA.

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The result was the USMCA agreement, which went into effect on July 1, 2020, and is expected to expire after 16 years.

Now, on the sixth anniversary of the USMCA, the three countries involved must decide whether to extend the trade agreement for 16 years.

But it is unclear what the impact of the review will be, and critics warn that the uncertainty it creates could lead to business problems.

If all three states fail to commit to an extension, they will trigger an annual review process, which would put the USMCA up for debate every year until 2036.

“We may receive annual reviews, but that also means there is uncertainty, and that’s bad for business decisions,” said Tony Stillo, director of Canadian economics at Oxford Economics, a consulting firm. “It’s a definite downloader, for sure.”

This, however, is what analysts currently expect to happen from the July review.

“What is likely to happen is that it will start to reset annually,” said Vina Nadjibulla, vice-president and head of research at the Asia Pacific Foundation of Canada, a non-profit think tank.

But he added that the outcome of the July talks was unclear. He pointed to the lingering question: “Is nothing agreed until everything is agreed, or is further change acceptable?”

In the worst case, either party can give six months’ notice and cancel the commercial agreement.

Nadjibulla also suggested that Trump might lean in that direction. “They said they wanted (the USMCA) out of existence,” he said.

Mr Trump himself told reporters this month that he felt the US did not need a trade deal.

“I don’t know that I will renew,” he said on June 10, before indicating that he has the opportunity to negotiate with other parties in the union. We are talking to them, we will see if we can do something about it.

A week later, Mr. Trump again expressed a lack of clarity about the U.S. position. “I would not like to have a contract, but I can sign it,” he said during his visit to Paris.

Protection from tariffs?

Unlike Trump, the leaders of Canada and Mexico have said they want the trade deal to continue.

The USMCA has been the most beneficial for the two countries because of the tariffs that Trump released last year, after taking office for the second time. Goods sold under this contract are exempt from added taxes.

But Trump has used various legal tools to tax even USMCA-compliant goods. His administration, for example, has turned to Section 232 of the Trade Expansion Act, which allows for economic sanctions on products that “threaten” US national security.

They called for the bill to impose a 50 percent tariff on Canadian steel, aluminum, and copper, as well as a 25 percent tariff on non-USMCA-compliant automobiles. There will also be a 10 percent tax added on certain wood products.

Exports from USMCA protection were much cheaper.

The Trump administration previously used the International Emergency Economic Powers Act (IEEPA) to impose tariffs around the world, until The United States Supreme Court ruled that such taxes are unconstitutional in February.

But the White House responded to the Supreme Court decision by giving a 10 percent worldwide tariffusing Section 122 of the Trade Act, which allows the US to eliminate “large and significant” trade deficits.

The Trump administration has threatened to raise that to 15 percent in the coming months, even as the rates face legal challenges.

He has also offered extra money to Canada and Mexico, criticizing them for failing to enforce an end to forced labour.

Mexico and Canada are two of the largest trading partners in the US. Until recently, Canada, for example, exported about 80 percent of its goods to the US.

The USMCA has allowed many businesses to be protected from Trump’s tariffs.

But analysts like Canada’s Stillo warn that keeping the USMCA under annual review could weaken the bloc’s economy.

“The annual review will be a ‘big storm’,” he told Al Jazeera.

Canada is expected to push for tariff support as part of the USMCA review, a critical issue for the country’s economy, according to Stillo.

“Our view that the economy will improve in the second half of this year and next year was based on lower prices,” he said.

Risk to US exports

But the USMCA has also helped US businesses, which export products such as auto parts, aircraft, gasoline and computers to Canada and Mexico.

According to data analysis from the Peterson Institute of International Economics, most US imports go to Canada and Mexico and are exported under the USMCA.

For example, North Dakota shipped 89.9 percent of its goods to Canada and Mexico last year. Michigan was at 64.9 percent, Iowa was at 50 percent, and Arizona was at 39 percent. All four states voted for Trump in the 2024 election.

Overall, the US is also highly dependent on exports from Canada and Mexico in certain product categories. Exports such as auto parts, aircraft and oil generated more than $10bn last year in trade between Canada and Mexico, confirming the importance of those involved in the trade.

For example, 75.6 percent of the US goods and equipment for tractors, public transportation, cars and similar vehicles, etc. go to two neighboring countries.

The review’s authors, Gary Hufbauer and Ye Zhang, wrote that the results of the USMCA review could have major implications for US industries and countries.

If, for example, Trump canceled the trade deal, it could lead to the US imposing more tariffs on Canadian and Mexican goods. That, in turn, could prompt those countries to raise their tariffs — or to look for substitutes for US or domestic goods.

“There is an export risk to the US in the termination of the USMCA,” Hufbauer told Al Jazeera.

While most of the US economy can weather the uncertainty, businesses and other countries may suffer, according to his analysis.

But Hufbauer warned that the fallout doesn’t end there. A failed USMCA review can cause long-term damage to cross-border relationships.

“The biggest consequence for the US is to disrupt our cooperation and relationships around the world. The political side is much bigger than the economic one in this,” said Hufbauer.

Stillo, for his part, sees the review of the USMCA as taking place within a larger international reform, in which traditional agreements are being tested.

“We are in a very broken country. It’s not just global disunity, but we’re seeing the disintegration of regional institutions,” said Stillo.

In Canada in particular, economic uncertainty may force leaders to look to a wider range of trade partners.

“We will trade with the US all the time,” Stillo said. “But now it’s about diversity.”