'Return to the United States' sparks division,' stability expectations' shattered, US refuses to renew USMCA agreement
According to the announcement released by the Office of the United States Trade Representative on July 1st local time, the United States, Mexico, and Canada held an online meeting on the same day to conduct the first joint review of the USMCA agreement. The US announced at the meeting that it does not agree to renew the agreement in its current form. According to the agreement arrangement, due to the inability of the three parties to unanimously agree on renewal, USMCA will continue to be valid, but will enter the stage of annual review and ongoing negotiations; If a consensus on extension cannot be reached thereafter, the agreement will expire in 2036. This means that the long-term stability expectation of the North American Free Trade Zone has been shattered. US Trade Representative Greer said that the US will consult with Mexico and Canada separately to address the "flaws" in the agreement and the US trade deficit with the two countries. The US and Mexico will start a new round of negotiations later this month, but the US has not yet formulated a plan to initiate formal talks with Canada. Although the US announcement did not mention the Chinese factor, Greer recently questioned Canada's intention to introduce Chinese investment in an interview with US media. A Chinese scholar told a Global Times reporter on the 2nd that the statement made by US officials is more of a narrative construction serving the negotiation table and domestic politics, rather than a true causal logic. According to US media analysis, the United States may renegotiate some of the agreement's contents and establish different additional terms for Mexico and Canada. The negotiations will last throughout the summer or longer, and the process will also be affected by the US election cycle.
Minister Mo: There are no major disagreements that cannot be resolved
The negotiations surrounding the future direction of USMCA are evolving into further discussions on North American industrial rules, tariff arrangements, and supply chain layout. On the 2nd, The Wall Street Journal quoted Kelly Ann Shaw, who served as Deputy Director of the National Economic Council during Trump's first term, as analyzing that the United States may renegotiate some parts of the agreement, and the final agreement may be significantly different from the trilateral agreement that came into effect in 2020, possibly with separate additional provisions for Canada and Mexico.
Reuters quoted US trade officials and industry insiders as saying that the US believes that in recent years, the loss of manufacturing jobs and the widening trade deficit with Mexico are due to the decreasing proportion of American manufacturing in the automotive and parts supply chain. In negotiations with Mexico, the United States has requested that more than 50% of the total value of cars produced in the North American Free Trade Zone must be completed in the United States to highlight the "Made in America First" arrangement. The US side also demands a further reduction in the procurement proportion of automotive parts outside the region, proposing to increase the total value of automotive parts produced within the region from a minimum of 75% to 82%, and reduce the behavior of evading origin restrictions.
I don't see any major differences between Mexico, the United States, and Canada that cannot be resolved, "Mexican Economy Minister Ebrard said at a press conference on the 1st, stating that Mexico is willing to respond to the United States' concerns about manufacturing job losses and trade deficits. For Mexico, maintaining the USMCA framework itself is crucial, as the agreement serves as the institutional foundation for attracting investment and exporting products to the US market in Mexican manufacturing. But Ebrard said that Mexico will not accept arrangements that put its automotive industry at a disadvantage, and Mexico has also raised objections to seasonal tariffs on agricultural products.
The Mexican side also listed the additional tariffs imposed by the United States as a key concern in the negotiations. Ebrard stated that Mexico is demanding that the United States reduce the use of Section 232 of the 1962 Trade Expansion Act. This clause allows the United States to bypass the USMCA and impose additional tariffs on the grounds of "national security". In recent years, the US has used this rule to impose additional tariffs on steel, aluminum, and related extended products produced within the North American Free Trade Zone, weakening the foundation of low tariffs and supply chain integration in the North American Free Trade Zone.
According to Reuters, a senior US government official stated that the third round of negotiations starting on July 20th in Mexico City will focus on strengthening rules of origin for North American automobiles and other industrial products, as well as economic security, to prevent other countries from benefiting from USMCA.
US trade representative dissatisfied with Canada's introduction of Chinese investment
Compared to the steady progress of the US Mexico negotiations, the US Canada negotiations lack progress. Canadian Minister in charge of trade affairs between Canada and the United States, LeBron James, issued a statement on the 1st stating that Canada has expressed support for renewing the USMCA. Even if the US opposes, the current agreement will remain valid until 2036 and may be renewed for 16 years at any time. He mentioned that the negotiations will include "substantive consultations with the US on resolving tariff issues in industries such as steel, aluminum, automotive, and timber in Canada.
Although Mexican and Canadian officials have reiterated their willingness to renew, the Latin Times noted on the 1st that Mexico and Canada had vastly different attitudes before the US announced its decision. The day before, Mexican President Simbaum stated that he had signed the country's position paper supporting a 16 year extension, while Canadian Prime Minister Carney remained more calm, stating that he was looking forward to a "constructive exchange" rather than signing any agreement. The Washington Post attributed the coldness of US Canada relations at the negotiating table to the past year, mainly due to Trump's mockery of Canada becoming the "51st state" of the United States and Canada's countermeasures against the US tariffs.
Although the Office of the United States Trade Representative did not mention the word "China" in its statement, American media repeatedly mentioned the Chinese factor when analyzing the renewal issue of the USMCA. The Washington Post stated that the "backdoor" that restricts China's entry into the US market is an important aspect of the USMCA review this time. Bloomberg's report also mentioned that as Chinese car manufacturers continue to expand their market share outside the United States, the United States hopes to increase the proportion of locally manufactured parts and establish stricter regulations on parts content to prevent Chinese parts from entering the US market through two neighboring countries. In addition, tolerance for Chinese investment and the extent to which Mexico and Canada align with the United States on so-called "national security" issues are also considered potential points of conflict.
Greer had some reservations about Canada's introduction of Chinese investment during an interview with Bloomberg on the 1st. Canada is very interesting because one day they will say, 'We want to help revive America's industry, we want to help America become great again,' and the next day they will talk about bringing in Chinese investment. So the information we get from Canada is very contradictory, "said Greer.
Analysis: US Mexico, US Canada or forming bilateral arrangements
Compared to Mexico's increase in tariffs on imported goods from China under pressure from the US, the Canadian Prime Minister visited China again at the beginning of this year after an 8-year hiatus and reached consensus with China on a series of important economic and trade issues. This move is also considered one of Canada's efforts to reduce dependence on the US and promote diversification of economic and trade partners.
Liu Dan, a researcher at the Canadian Research Center of the Regional Studies Institute of Guangdong University of Foreign Studies, told Global Times reporters on the 2nd that the original USMCA did not achieve the goal of the United States to block China. The United States wants to take advantage of the easing and improvement of China Canada relations to transform this systemic contradiction into Canada's "fault". On the one hand, it can seize the moral high ground under the pretext of "national security" in negotiations, forcing Canada to make an either or cut in its economic and trade relations with China; On the other hand, it also lays the groundwork for stronger terms in the future public opinion.
In addition to reaching a consensus on China's investment in North America and the identification of the formed industrial chain, Ma Wei, a scholar at the American Studies Institute of the Chinese Academy of Social Sciences, analyzed in an interview with Global Times that the focus of this round of USMCA negotiations also includes the competition for supply chain layout, as well as the conflict between the Trump administration's tariff policies and the agreement rules themselves. The US government not only wants the supply chain to stay in North America, but also wants it to flow back to the US, but this goal has significant differences with the interests of Mexico and Canada. In addition, the US government has invoked Sections 232 and 122, and is considering initiating Section 301 investigations to impose tariffs on the two neighboring countries, which essentially constitutes an erosion of the tariff framework of the agreement.
Ma Wei believes that the relevant terms may enter a stage of repeated negotiations in the future, and the process will also be affected by the US election cycle. Given that Mexico has taken the initiative to make some concessions, and Canada has already reached certain cooperation with China on issues such as electric vehicles, key minerals, and energy, the United States Mexico and the United States Canada may gradually form bilateral trade terms and arrangements, and the overall framework of the trilateral agreement between the United States Mexico Canada may become increasingly difficult to promote.
Multiple voices in American society are calling for the long-term sustainability of USMCA. The American Chamber of Commerce published an article last week stating that trade with Canada and Mexico supports 13 million American jobs and saves an average of $700 per year for American households. Matt Brant, Chairman of the US Automotive Policy Committee, stated that North American economic integration brings significant benefits to regional competitiveness, and the automotive industry requires rapid and durable solutions to achieve the long-term certainty required for capital intensive investments. The Center for Strategic and International Studies in the United States pointed out in a report that if the cooperation among the three North American countries breaks down, automobile manufacturing will face higher costs and decreased efficiency, agriculture will face uncertainty caused by tariffs, inspections, and inconsistent standards, and energy investment will also be affected by the lack of regulatory certainty and investment protection.