U.S. and Mexico revive trade talks as Canada faces new tariffs

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U.S. and Mexico accelerate USMCA

Highlights

The U.S. and Mexico resumed formal USMCA talks.
Canada is not participating in the current round.
Washington wants more manufacturing in the U.S.
Auto rules remain a key point of negotiation.

Negotiators from both countries began three days of meetings in Mexico City focused on updating the six-year-old agreement, Reuters reported. The talks are taking place without Canada after the Trump administration formally triggered the review process on July 1, starting a 10-year countdown that could eventually end the agreement unless all three countries reach a revised deal.

Manufacturing and trade deficits take center stage

The Trump administration has made reducing the U.S. trade deficit with Mexico one of its main negotiating priorities. U.S. Trade Representative Jamieson Greer said Washington wants more manufacturing to return to the U.S., particularly in the automotive sector.

The U.S. goods trade deficit with Mexico reached $197 billion last year, up 17% from a year earlier. Greer pointed to recent investment announcements from automakers, including Toyota and General Motors, as evidence that production is gradually shifting north of the border.

Washington is also pushing for stricter regional content requirements. During earlier negotiations, the U.S. proposed requiring at least 50% of the value of North American-built vehicles to originate in the U.S., a significant change from the current rules. This would require major adjustments across the integrated automotive supply chain.

Mexico has indicated it wants to complete negotiations before the end of the year. Officials argue that prolonged uncertainty risks slowing investment and reducing North America's competitiveness.

Canada remains outside the talks

The latest negotiations are unfolding against the backdrop of new U.S. tariffs on nearly $20 billion worth of Canadian goods. Washington says the measures respond to Canadian tariffs on American automobiles, steel, aluminum, and dairy products.

Beyond tariffs, the negotiations increasingly focus on economic security. The U.S. wants stronger regional rules designed to limit China's access to the North American market through Mexico and Canada. Those discussions include trade in vehicles, steel, aluminum, and other industrial products.

A critical phase for North American trade

The negotiations will determine whether North America preserves an integrated manufacturing base or moves toward a more protectionist trade framework. Washington is seeking stricter rules that encourage companies to source more components and assemble more products within the region, particularly in the automotive, steel, and aluminum sectors.

The outcome will have implications well beyond the U.S., Mexico, and Canada. USMCA supports roughly $1.6 trillion in annual trade, and any changes to rules of origin, tariffs, or regional content requirements could reshape investment decisions, supply chains, and production across North America for years to come.

We have previously highlighted that the U.S. declines to renew USMCA, setting up annual trade reviews with Canada and Mexico.

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