Ending USMCA could fuel higher US consumer prices

The US government's recent refusal to renew the United States-Mexico-Canada Agreement (USMCA) left the trade pact in effect but its future unclear. The treaty will be subject to annual review for a decade, unless the parties eventually renew or end it. President Donald Trump has mentioned the possibility of terminating the deal and has separately talked about imposing a global tariff of 15 percent.

This uncertainty raises questions about how the USMCA's termination would affect US households. The data suggest that ending the agreement and imposing 15 percent tariffs on goods from Canada and Mexico would raise US consumer prices significantly, particularly on those imports.

This projected result partly reflects America's heavy reliance on Canada and Mexico as a source for some key goods. In 2025, 26.9 percent of all US goods imports came from these countries. Their products account for a majority of US imports in certain categories, as classified under the global Harmonized System (HS). The top 10 of these categories by global import value are listed in the table below by their four-digit HS codes. The list is headed by categories including oil, motor vehicles, and auto parts. These categories would be difficult to shift to other source countries in a changing tariff landscape because of heavy reliance on supplies from Mexico and Canada.

Trump said in February he would impose a 15 percent tariff on all imports but has not done so. A permanent and comprehensive US tariff of 15 percent would almost certainly require congressional assent, which is unlikely if the November 2026 elections give Democrats control of the House of Representatives. But assuming 15 percent tariffs on all US imports from Mexico and Canada, the impact on US households can be traced based on the following considerations and data points:

• 24.8 percent of consumer goods imports come from Canada and Mexico (using the classification scheme from the UN Statistics Division to identify consumer goods).
• 88.2 percent of Mexican and Canadian imports for consumer purchase are USMCA compliant as of December 2025 (up from 40 percent in early 2025 as companies adjusted to new rules) and would face much higher tariffs in this scenario (Imports for Consumption, US International Trade Commission DataWeb).
• There is currently a roughly 92 percent pass-through rate to consumers from tariffs (Federal Reserve Bank of New York; Kiel Institute for the World Economy).
• 9 percent of personal consumption expenditures (PCE) can be traced back to imports (Federal Reserve Bank of San Francisco).

The potential impact on the PCE index, an indicator of the overall US consumer price level, can be found by multiplying the data points above. The calculation, explained in footnote 1 below, suggests that the index would increase by 0.27 percent if 15 percent tariffs replace current USMCA rates.   

The same number can be found by multiplying the 15 percent tariff by the sum of value added in consumption of imports from Canada and Mexico (using data from the Organization for Economic Cooperation and Development on value added in trade from both Canada and Mexico). It shows 1.1 percent value added in consumption from Canada and 0.7 percent from Mexico. Adding these together, and multiplying by a 15 percent tariff, the price impact once again equals 0.27 percent.¹

However, these calculations may underestimate the impact of a 15 percent tariff. Many intermediate goods eventually reach the US market as consumer goods, not accounted for in the estimates above. Imports from Canada and Mexico are major inputs to US manufacturing: Some $310 billion in industrial intermediate goods were imported from Canada and Mexico in 2025, accounting for 22 percent of industrial intermediate imports and 34 percent of all imports from the two partners. Moreover, 56 percent of HS 8708 auto part imports come from Mexico and Canada (mostly Mexico). Using the same data and methods as above on trade in value added but focusing on auto manufacturing, the consumer price impact of a potential 15 percent tariff applied to the auto sector would be 2.7 percent.²  Higher prices on these goods, compounded by multiple border crossings in the integrated regional economy, would have a significant impact on US auto prices.

With the USMCA's fate uncertain, it is reasonable to consider the scenario presented. A 0.27 percent increase in consumer prices would be significant and particularly concentrated in specific goods, including cars, trucks, and other motor vehicles. Further, only the direct impact from tariffs on consumer prices has been calculated here. Canada and Mexico might impose retaliatory tariffs, harming US exporters. After the unwelcome rise in consumer prices this year from the spike in oil prices, another jolt from 15 percent tariffs on Mexican and Canadian goods could be unpopular with American voters.

Zachary Resneck is a PIIE intern for summer 2026.

Notes

1. 0.248 x 0.882 = 0.219, the share of consumer goods imports from Mexico and Canada that are potentially subject to a higher tariff.  0.219 x 0.15 = 0.033, the potential price impact if 15 percent tariffs are entirely passed through to consumers.  0.033 x 0.92 = 0.030, the impact taking account of the pass-through rate of tariffs. 0.0030 x 0.09 = 0.0027, the price impact considering the share of the PCE that can be traced to imports.

2. 2.97 percent (Canada's percentage of value added in consumption) + 15.1 percent (Mexico's) = 18.07 percent, x 15 percent (the tariff) = 2.7 percent.