USMCA: How we got here

For more than 30 years North America has been a economic powerhouse, and agricultural economists credit the leadership from the United States, Mexico and Canada.

The North American Free Trade Agreement went into effect Jan. 1, 1994, led by President Bill Clinton and his counterparts in Mexico and Canada. NAFTA gradually phased out customs duties and tariffs on a wide range of manufactured goods, agricultural products and textiles.

The three countries also agreed to a review process, and ultimately under the Trump administration, the United States-Mexico-Canada Agreement replaced NAFTA in July 2020.

Under USMCA, the three countries must conduct a formal six-year joint review to assess how the deal is working and decide whether to extend it for another 16 years on July 1, said Guy Allen, a senior economist with the International Grains Program at Kansas State University. If they do not all agree to extend it, USMCA remains in force but moves onto a 10-year termination clock, with the agreement set to expire in 2036 unless a new deal is reached.

President Donald Trump has given mixed signals about USMCA.

The clock is starting

Harrison Pittman, director of the National Agricultural Law Center at the University of Arkansas, said there are two dates to keep in mind. The big picture is July 1, 2036, but he also noted that the first joint review is set for July 2026. The joint review is really where all the attention is focused and will be for the upcoming weeks and months.

“The public-facing information is that U.S.-Mexico talks appear to be happening at one speed and U.S.-Canada talks are at another speed,” Pittman said. “Beyond that, it’s always possible there are private discussions/negotiations occurring that we simply won’t know about.”

U.S. and Mexican negotiators are in a second round of discussions in Washington focused on agriculture and energy, following a first round in Mexico City that centered on auto rules of origin, steel and aluminum, and economic security, Allen said.

U.S. officials have floated increasing the regional content requirement for vehicles to 82% and adding a rule that at least 50% of a vehicle’s value be sourced specifically from the United States. They are also pressing Mexico on energy policies that favor state-owned Pemex and on biotech crop rules, after a dispute over genetically modified corn led Mexico to reverse planned import bans but maintain a prohibition on domestic planting.

A third round of U.S.-Mexico talks is scheduled in Mexico City for the week of July 20, with the goal of narrowing differences on autos, agriculture, metals and enforcement tools, Allen said. Canada, meanwhile, has been largely excluded from those formal discussions, although Trade Minister Dominic LeBlanc has been meeting bilaterally with U.S. Trade Representative Jamieson Greer to defend duty-free access and raise concerns about proposed auto and dairy changes.

What ifs

Chad Hart, a professor in the Department of Agricultural Economics at Iowa State University, said there were several potential outcomes.

“The one that I think most of us would love to see is a straight-out renewal. If all three sides agree, what would happen is everybody would agree that the deal stands and it would actually extend it for the next 16 years,” Hart said, adding that the deal would be up for review in 10 years.

Another scenario would be an extension with limited concessions allowed on all sides, he said. In this case, those concessions would be small changes that would keep the essence of the intent of USMCA, and the process would not have to go through formal re-ratification but would allow for changes so each side feels comfortable moving forward.

A final scenario would be that no agreement on an extension is reached, but that does not end USMCA. It would indicate the sides do not want to wait another 16 years to renegotiate, Hart said.

Under that possibility, minor concessions could be made each year, and that is something the Trump administration is hinting at, the Iowa State economist said.

Pittman said if no agreement is reached in the joint review process, the primary ramification is the political and economic uncertainty created within and between three major, otherwise interdependent trading partners.

“This includes uncertainty about dispute resolution, as well as the varying levels of impact on the wide range of provisions that eliminated tariffs and many nontariff trade barriers,” he said.

The joint review process is a new provision without precedent, he said. There are no lessons learned or established practices since this is a first-time process for all involved.

“From an institutional perspective, what role does Congress ‘want’ to play in the joint review process, and what role does it actually play?” Pittman said are important questions that need to be answered by Congress. “If there is a lack of congressional involvement at this phase, does that portend a more challenging process for any congressional action later?

“And what role does the executive branch believe the legislative branch has in this process?” Pittman said. “Bottom line, at least in my mind, is whether Congress wants to be materially involved and, if so, is there sufficient bipartisan consensus on enough issues to have an impact.”

Purdue study

A study undertaken by Purdue University, The USMCA Affordability Study: Effect of North American Trade on U.S. Food Prices, commissioned by the Corn Refiners Association in partnership with the Agricultural Coalition for USMCA, noted the benefits. The findings underscore that the affordability benefits of North American trade are especially important for lower-income households, which spend a greater share of their income on food and are often the most vulnerable to rising grocery costs.

According to the Purdue analysis, every 1% reduction in tariffs on food products corresponded with an average 2.8 percent decrease in consumer food prices over a decade. The study warns that without USMCA, tariffs could rise by an average of 7.4% above current levels, effectively eliminating those consumer food-cost savings within 10 years.

The National Corn Growers Association has said U.S. farmers cannot afford to lose out on 1.8 billion bushels of corn demand that is at stake if the agreement stalls.

In 2025, just five years after USMCA took effect, U.S. corn exports to Mexico and Canada more than doubled in value to more than $6.2 billion. U.S. corn export values have remained at these high levels since skyrocketing in 2022. If USMCA is not renewed, American corn farmers risk losing this growth and seeing these numbers drop to pre-agreement levels.

Dave Bergmeier can be reached at 620-227-1822 or [email protected].