U.S. won’t renew USMCA, opening door for negotiations with Canada and Mexico

The Trump administration has decided not to renew its trilateral trade pact with Canada and Mexico, instead opting to conduct annual reviews of the treaty that President Donald Trump once called "the best agreement we've ever made."

The widely anticipated decision on the United States-Mexico-Canada Agreement, known as USMCA, was revealed Wednesday, the deadline for the three North American trade partners to determine whether they would renew their agreement for another 16-year term.

Trump "chose not to rubber stamp a USMCA renewal without addressing existing issues," a senior administration official told reporters in a call announcing the move.

"So in other words, the United States did not agree to renew the USMCA in its current form. So, as a result, the USMCA is not renewed," the official said.

U.S. Trade Representative Jamieson Greer, in a statement released while the call was ongoing, said that the Trump administration "will continue to engage with Mexico and Canada to address the Agreement's shortcomings."

Trump's "primary" issue with USMCA centers on America's trade deficits with the two trading partners, the senior official said.

The decision means the USMCA will stay in effect for another decade, provided no member tries to withdraw from it. But it also triggers yearly reviews that could result in the renegotiation of major parts of the treaty.

"The most likely outcome is that the negotiations continue," with the U.S. pressing for changes and Canada and Mexico "pushing back" to try to maintain the status quo, Patrick Childress, a former assistant general counsel at the Office of the U.S. Trade Representative who was the USTR's lead lawyer for USMCA implementation, told CNBC.

The USMCA was negotiated during Trump's first term to replace the previous, 26-year-old trilateral trade pact known as NAFTA, which Trump frequently excoriated as a raw deal for the U.S.

When the new deal came into effect in July 2020, Trump touted it as "the fairest, most balanced, and beneficial trade agreement we have ever signed into law." 

But Trump's enthusiasm for USMCA has recently appeared to wane, coinciding with mounting strain on the U.S. relationships with its two neighbors.

"I don't know that I'm going to renew it," Trump said of USMCA in June. "We don't need anything that Canada has. We don't need anything that Mexico has, but they need everything that we have. And they have to treat us better."

Trump has long complained about the U.S. sustaining trade deficits with its economic partners. Seeking to address that perceived unfairness and force other policy changes, Trump in his second term imposed a series of tariffs on nearly every country, including Mexico and Canada.

Trump's tariff regime has since been stymied by court losses.

The U.S. and Mexico had already begun a series of bilateral negotiations that are scheduled to continue past the July 1 deadline date. The U.S. and Canada have not started their own talks, however.

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