
When we last left the subject of trade and trade policy, the elections in Mexico had just taken place and the elections in the US were still in the distance. As we enter 2025, Claudia Sheinbaum is President of Mexico and Donald Trump has taken office in the US. In addition, Justin Trudeau announced on January 6 that he is stepping down as Prime Minister of Canada following selection of a new leader of the Liberal Party and national elections. So, what are we looking toward in terms of trade, trade policy, and the future of the USMCA? The road could be bumpy. We have some reports that could give us a glimpse of what’s ahead in these areas.
A team at Thompson Hine working as SmarTrade did a recent series of presentations on a variety of topics, including “SmarTrade Fundamentals: US Trade Policy”. It covered all the basics but also provided details on possible tariff increases and the USMCA review. On possible tariff increases, these areas were listed by SmarTrade:
Continued leverage in negotiations: 25% tariff on Mexican goods, migration issue and reshoring Chinese production problem
Offset to planned tax cuts: 60-100% tariffs on imports of Chinese goods, 10-20% tariffs on imports worldwide
And more specifically:
Congressional repeal of Permanent Normal Trade Relations with China
Section 301 action targeting specific countries (e.g., China – fentanyl petition and expand/update existing Section 301 investigation/report)
Section 232 action targeting specific products and/or countries (e.g., Mexico)
Section 201 safeguard targeting specific products
IEEPA implementing global tariff increase
Regarding the USMCA, there is a Joint Review by July 1, 2026, regarding “operation of the Agreement”; “review and recommendations for action…”; and “decide on appropriate actions.” The procedure would be:
Provide recommendations “at least one month before” (270 days’ notice and comment in U.S. and 180 days for USTR to report to Congress)
Renew for 16 years or…
Revise, renovate, renegotiate
Timing – 20 days after report to Congress, 1 year time frame?, kick the can, what happens?
Ongoing consultation with Congress (70 days before next review); or …
Rip it up – 6-month withdrawal clock remains in effect
A list of possible issues for review, from the US vantagepoint, would be:
China investments in Mexico
Steel and aluminum (and aluminum extrusions)
Auto core parts “roll-up” and clarification of EV
Agricultural disputes (dairy [CAN], GMO [MEX], organics)
Mexico’s energy policies
Canada’s digital service tax measures
Reforms to Rapid Response Labor Mechanism
(Note: The SmarTrade presentation took place on November 14. Then-President-elect Trump mentioned the possibility of 25% tariffs on Mexico and Canada and an additional 10% on China on November 25. More on this follows in sections below.)
Our colleague Angeles Villarreal of the Congressional Research Service (CRS) presents timely reports to Congress on subjects involving Mexico. The last report on “The U.S.-Mexico-Canada (USMCA) Trade Agreement” was updated on December 6 to provide key information for incoming members of Congress. The report goes through the major provisions of the USMCA and the differences with NAFTA. It also gives elements of the timetable for review, including:
Early October 2025: Federal Register notice date for public comment and public hearing date on whether the United States should extend the pact
Early January 2026: USTR report to Congress due on issues the United States wants to address in the Joint Review
Finally, the report lists the issues for Congress going forward:
Preparing for the 2026 USMCA joint review, including assessing potential changes to the agreement
Monitoring proposed tariffs and the extent to which they may pose legal challenges under USMCA, which is based on duty-free trade, and affect regional supply chains, which are dependent on cross-border trade
Oversight of issues such as implementation of ROO; concerns of PRC firms evading tariffs by manufacturing in North America; and USMCA disputes on energy, labor, biotechnology, and digital services taxes
We should expect more reports from the CRS in the near future.
In November, the Wilson Center produced a short but very useful report, “A Practical Guide to the USMCA 2026 Review: 3 Principles, 5 Rules for Success.” The report cautions that there are still a lot of unknowns in the process as it has never been carried out before. Each country will have its own procedures going forward, and these are briefly mentioned for Mexico and Canada. Importantly, the authors put forward three principles and five rules that they feel should govern the process.
On the “Rules of Engagement for a Successful Review”:
Principle 1: If it ain’t broke, don’t try to break it.
Principle 2: Prioritize External Challenges
Principle 3: Commitment to Long-Term Integration
On the “Rules for Structuring the Review”:
Rule 1: Ensure Compliance with Panel Decisions
Rule 2: Define Subject Areas for Potential Revision
Rule 3: Exclude Areas Working Well from Review Scope
Rule 4: Use the Review as a Platform for Broader Initiatives
Rule 5: Set a Timeframe for the Review and Maintain Neutrality on Withdrawal
Considering the recent banter we are hearing between the leaders of the three countries on issues of trade, the concluding comments of the authors should be taken to heart: “Allowing political differences to undermine the strategic, long-term benefits of regional alignment would be a missed opportunity. By prioritizing shared regional interests over short-term political considerations, Canada, Mexico and the United States can use the review to strengthen the agreement, ensuring that it remains a vital framework for cooperation and growth.”
SmarTrade mentioned two issues that could be on an agenda for the USMCA review: Agricultural disputes and Chinese investments in Mexico (especially in automotive).
On the first, USTR on December 20 released a statement that “United States Prevails in USMCA Dispute on Biotech Corn”: “The USMCA panel agreed with the United States on all seven legal claims, finding that Mexico’s measures are not based on science and undermine the market access that Mexico agreed to provide in the USMCA.” This issue actually began with a decree by former President Lopez Obrador on December 3, 2020, that called for a phase-out of use of both glyphosate and genetically modified (GE) corn for human consumption in Mexico by no later than January 31, 2024. Non-resolution of the issue would have caused a dramatic impact on exports of yellow corn to Mexico by primarily Illinois as well as a major importer of yellow corn in Mexico – Ingredion, a member of the Chamber. The issue eventually found its way to a dispute panel of the USMCA; the results can be found in “Mexico – Measures Concerning Genetically Engineered Corn,” published on December 20. The report’s final statement is, “the Panel recommends that Mexico bring its Measures into conformity with its USMCA obligations under Chapters 2 and 9 of the USMCA.” Following the decision, Mexican President Sheinbaum indicated Mexico would rescind its import ban on genetically engineered corn but would plan to codify curbs prohibiting domestic production of GE corn. This case shows how long the process can take between the beginning and final resolution of an issue before Article 31 of the USMCA.
On the second issue, earlier last year the Alliance for American Manufacturing provided a detailed report, “On a Collision Course: China’s Existential Threat to America’s Auto Industry and Its Route Through Mexico.” The basis of the report is that China’s objective in the auto industry is no secret – global dominance through companies such as BYD, SAIC Motor, and battery maker CATL. With their growth and others, Chinese automakers and suppliers are looking for ways to enter the US via Mexico, thereby circumventing US tariffs. The authors recommend 11 policy initiatives to combat unfair trade. Among these are the following:
Impose exclusionary tariffs on all Chinese automobile imports to the United States, including both electric vehicles (EVs) and internal combustion engine (ICE) vehicles
Enact the Leveling the Playing Field Act 2.0 (S. 1856 / H.R. 3882) to stay ahead of new and evolving circumvention tactics used by China’s government
Fully enforce and tighten USMCA rules of origin (ROO) for all automobile content to ensure that its signatories benefit from the agreement in an equitable manner
Exclude automobiles and component parts manufactured by companies headquartered in a non-market economy, such as China, from gaining any preferential treatment under USMCA, GSP, and any other trade agreement
These policies will likely form part of the basis for discussion of any modifications to the USMCA during the review process.
Many of the above reports have listed possible outcomes for trade policy under President Trump’s administration based on comments that he has already made, especially in the tariff area. One month ago, Bloomberg Economics released their own view of tariff levels and timing in, “What Trump’s Next Trade War Could Look Like, a Guide” (this link requires registration to view). Their case would have tariffs beginning this summer with levels tripling on China until the end of 2026 and smaller increases on the rest of the world, focused on intermediate and capital goods that do not directly impact consumer prices. Average tariffs on US imports would reach 8% by then. Any tariff action of the 25% type on Mexico and Canada would have similar results. In the meantime, US imports and exports would drop from 21% of global trade to 18%, especially US-China trade, US growth would drop, and inflation would increase.
President Trump’s Trade Toolkit would include all the Sections of Trade Acts previously used. The design and delivery of the tariffs would rest in the hands of Trump’s key advisors, including USTR Jamieson Greer, Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and National Economic Council Director Kevin Hassett.
Of course, in the interim, our trading partners, especially Mexico, Canada, China, and the UK and EU, are all preparing their own arsenal including reciprocal tariffs. In the end, trade will suffer, imports and exports to and from all countries will be reduced, as well as relationships to keep the global network in order, politically and economically.
Authored By Ralph Biedermann, Executive Director USMCOC Mid-America Chapter.