United States-Mexico-Canada Agreement (USMCA)

The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement (FTA) among the three North American countries that entered into force on 1 July 2020, replacing the North American Free Trade Agreement (NAFTA). It is known as CUSMA (Canada-United States-Mexico Agreement) in Canada and T-MEC (Tratado entre México, Estados Unidos y Canadá) in Mexico. It keeps most trade among the three free of tariffs, but adds stricter car rules of origin, enforceable labour obligations, chapters on digital trade, and a review clause that can end the agreement's automatic renewal.

The three economies are among each other's largest trading partners, so the USMCA governs one of the biggest regional supply chains in the world, especially in cars, energy, farm goods and parts for manufacturing. It is administered by a Free Trade Commission of ministers from the three countries, and disputes go to panels under its own rules rather than to the World Trade Organization (WTO).

Imagine three neighbouring workshops that have shared tools and parts for years without charging each other. When the old arrangement expired, they wrote a new one. Goods still move freely, but a car only counts as "local" if most of its parts were made in one of the three workshops, and some of the work must be done by people paid at least a set hourly wage.

The new deal also has a check-up date. Every few years the three meet to decide whether to keep going for another long stretch. If one says no, they keep checking in every year, which gives the agreement a built-in pressure point.

Renegotiation began in August 2017 after the Trump administration criticised NAFTA. The three leaders signed the agreement on 30 November 2018 at the G20 summit in Buenos Aires. After objections from US Democrats, a Protocol of Amendment signed on 10 December 2019 strengthened labour and environmental enforcement and dropped a proposed extension of data protection for biologic medicines, a form of intellectual property (IP). The US implementing act became law on 29 January 2020, and the agreement took effect on 1 July 2020.

• Automotive rules. Cars and light trucks need 75% regional value content to trade duty-free, up from 62.5% under NAFTA; 40–45% of a vehicle's value must be made by workers earning at least US$16 an hour; and 70% of steel and aluminium bought by carmakers must originate in North America.
• Labour. Mexico committed to reform its labour law to allow independent unions and secret-ballot votes. A Rapid Response Labor Mechanism lets the US and Canada seek remedies against specific Mexican factories accused of denying workers' rights, linking trade access to the role of each trade union.
• Agriculture. Canada opened part of its supply-managed dairy, poultry and egg markets to US producers through a tariff-rate quota (TRQ).
• Digital trade. Bans on customs duties on electronic transmissions and limits on data-localisation requirements, a first for a US trade deal and relevant to the internet economy.
• Investment disputes. Investor-state arbitration was removed between the US and Canada and narrowed between the US and Mexico, with broader access kept for certain government contracts in sectors such as oil and gas.
• Currency. A chapter commits members to avoid competitive currency devaluation and to publish data on intervention and foreign exchange reserves.

For vehicles, regional value content is calculated with the net cost method:

• $\text{RVC}$ is regional value content, in percent.
• $\text{NC}$ is the vehicle's net cost to produce.
• $\text{VNM}$ is the value of non-originating materials, meaning parts from outside North America.

Worked example: a carmaker's net cost for a vehicle is $30,000, of which $6,000 is parts imported from Asia. RVC is $(30{,}000 - 6{,}000) \div 30{,}000 \times 100 = 80\%$, above the 75% threshold, so the car crosses the border tariff-free. If imported parts rose to $9,000, RVC would fall to 70% and the vehicle would face the normal tariff.

Panels under the agreement have ruled on several disputes, including Canadian dairy quotas (a 2021 ruling for the United States and a 2023 ruling for Canada) and Mexico's restrictions on genetically modified corn, which a panel found inconsistent with the agreement in December 2024. In 2025 the United States imposed tariffs on Canada and Mexico under the International Emergency Economic Powers Act, while exempting goods that qualified under the USMCA; on 20 February 2026 the US Supreme Court held in Learning Resources v. Trump that the act does not authorise tariffs. Separate US tariffs on steel, aluminium and cars under national-security law (Section 232) were not affected by that ruling and continued to strain the agreement.

Article 34.7 gives the agreement a 16-year term with a joint review in its sixth year. At the first review, on 1 July 2026, Mexico and Canada supported a new 16-year term but the United States did not confirm renewal, so the parties moved to annual joint reviews. The agreement remains in force; unless all three later confirm an extension, it is due to expire in 2036. The United States has pursued bilateral talks with each partner alongside the review.

Supporters say the USMCA modernised NAFTA, raised labour standards in Mexico and preserved deeply integrated supply chains. Critics on the free-trade side argue that the stricter car rules raise costs and that the review clause creates uncertainty that deters investment; some labour and environmental groups say enforcement remains too weak. The agreement is a test case for whether a trade bloc can survive the return of protectionism and the use of tariff threats among allies, a theme in wider debates about globalization and nearshoring of foreign direct investment (FDI) to Mexico.

• Office of the United States Trade Representative: USMCA
• Global Affairs Canada: CUSMA