A New Chapter for North American Trade

Summary

The US declined to extend the USMCA for another 16-year term, triggering an annual review process that keeps the agreement intact but creates recurring negotiations through 2036. The framework is shifting from rules-based to discretionary, sector-specific trade policy, increasing uncertainty. A structural divergence is widening between Mexico and Canada: Mexico gains from nearshoring, AI server assembly, and deep integration into US IT hardware supply, while Canada faces headwinds from overlapping strategic sectors and stalled bilateral talks. The primary risk is prolonged uncertainty rather than a full USMCA collapse.

• USMCA moves to annual reviews after the US declines a 16-year extension; current terms remain enforced.
• Trade policy framework shifts to a more discretionary, sector-specific approach tied to industrial policy objectives.
• US-Mexico negotiations are advancing faster than US-Canada talks, raising the possibility of asymmetric bilateral outcomes.
• Mexico now supplies ~35% of US IT hardware imports and ~50% of server imports, driven by nearshoring and AI adoption.
• Canada's manufacturing export base overlaps with US strategic sectors prone to Section 232 tariffs, with negligible share in high-tech imports.
• Northern Mexico has become a critical interconnection hub for Latin America-US data flows and multi-cloud strategies.
• The main risk is prolonged uncertainty around implementation and sector-specific trade measures, not an imminent USMCA collapse.