- President Trump has suggested he won’t renew the United States-Mexico-Canada Agreement.
- He recently claimed the United States doesn’t need Mexico or Canada, or their goods.
- If the deal dies, prices could rise significantly and automakers would have to deal with the fallout.
President Trump played an instrumental role in the United States-Mexico-Canada Agreement (USMCA) and it’s up for review this year. Despite being back in office, he recently cast doubt on its future.
Speaking at the White House, Trump said “I’m not looking to renew it.” He went on to say, “I don’t know that I’m going to renew it” because the United States doesn’t need anything that Canada or Mexico has to offer.
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The President went on to claim both countries need the United States and complain about a trade deficit with them. Trump wants that to be a trade surplus and he said we don’t need Canadian cars, lumbar, or energy. However, the President said they’re talking to their counterparts and we’ll see if something comes out of it.
While Trump’s words shouldn’t be taken at face value, there’s little doubt he wants to increase pressure on Canada and Mexico in the hopes of getting a better deal. Previous reports have suggested the agreement isn’t dead, but could incorporate some serious changes.
In particular, the administration reportedly wants to increase the required North American parts content from 75% to 82% to receive preferential treatment. More importantly, at least 50% of that value would need to come from the United States.
This is a significant change as the current agreement only requires 40-45% of “core parts” to be made in high-wage jurisdictions such as Canada or the United States. In effect, the United States could try to sideline Canada and there’s been speculation that’s why most of the negotiations have focused on Mexico.
It’s hard to know how things will turn out, but the United States and Canada remain at odds and ditching the USMCA would only make matters worse. It could also throw a huge wrench into the auto industry as a number of companies have plants in Canada and Mexico to take advantage of the existing agreement.
If the deal is ditched, prices on imports could skyrocket and consumer choice could be significantly reduced. However, as the saying goes, “Trump Always Chickens Out,” so this could be all talk and no substance.
