US Declines to Renew USMCA: What Does it Mean?

The Trump Administration’s decision not to renew the trade agreement that the president once called “the best and most important trade deal ever made by the USA" has put American trade with Canada and Mexico into a period of uncertainty, perhaps even chaos as the three nations sort out what it means.

On the eve of the scheduled July 1 renewal of the US-Mexico-Canada Agreement -- the successor to the better-known NAFTA -- the US announced it would not automatically do so. 

According to the Bloomberg news service, the current agreement is supposed to remain in place until at least 2036 but now the US is holding up the renewal looking for better terms for trade with its northern and southern neighbors. It has already initiated bilateral talks with them over trade issues and Bloomberg said individual side deals could be agreed to, circumventing the broader USMCA treaty, which was signed by President Trump during his first term when it replaced NAFTA. 

The Wall Street Journal published an opinion column right before the July 1 date urging the US to “reaffirm” the pact. The president said, in announcing he would not, that he wanted better terms for American companies, particularly in the auto sector. The Journal reported that “the pact remains in effect, but now the US refusal to renew means American trade representatives will have to meet every year for a decade with Mexican and Canadian officials to continually review the deal. Negotiations can continue in the meantime.”

At stake is an enormous amount of trade amongst the three nations. The WSJ reported that “the pact underpins nearly $2 trillion in annual trade. Last year, combined US exports to Mexico and Canada surpassed $670 billion, according to US statistics. In comparison, US exports to China last year amounted to about $106 billion.”

For now trade amongst the three nations remains as is but that will probably eventually change as negotiations create new measures.

Even as tensions in the Middle East are easing up, freight rates around the world continue to hit levels not seen in several years. 

Women’s Wear Daily recently reported that “The Drewry World Container Index (WCI) increased 5 percent week over week to $4,166 per 40-foot container, supported most heavily by an increase in rates on the trans-Pacific trade route.” It said this was being caused by shippers trying to get ahead of potential increases in fuel priced and possible new tariffs.  

WWD said “The Shanghai-to-Los Angeles corridor was the biggest culprit of the upward move. Cargo prices on that trade lane increased 12 percent to $5,750 per container. Containers traveling from Shanghai-to-New York also rose 6 percent to $7,149.”

These latest developments continue the erratic patterns importers and exporters have seen over the past six years, from the start of the pandemic through to the recovery and then additional impacts from fuel prices and shortages caused by the war in the Middle East. Freight traffic in the Straits of Hormuz continues to be subjected to the on-again and off-again blockades by Iran depending on the status of peace talks. 

For importers and exporters it is one more factor to keep in mind when arranging for freight timing and routes.