The future of the USMCA

President Donald Trump’s trade actions in his second term have upended provisions in the United States-Mexico-Canada trade agreement (USMCA), signed into law in 2020, the last year of Trump’s first term in office. Still, USMCA’s complex terms governing a variety of issues remain in the pact, despite Trump’s threats and the imposition of tariffs on Canada and Mexico, leaving the future of relations with two of the most important US trading partners uncertain.

This guide explains why the USMCA nevertheless remains at the core of the three countries’ relationship, what’s at stake in many different aspects of their interdependence, and possible paths forward for negotiators to resolve. This page will be updated as the trade deal is subjected to new conflicts and possible adjustments in the months ahead.

Editor's note: For the most up-to-date PIIE analysis on the USCMA, visit this page. Links to relevant recent research are also included below.

What happens if Trump goes ahead with 15 percent tariffs on Canada and Mexico? 

Apart from Section 232 (national security) tariffs, US merchandise imports from Canada and Mexico largely enter the US market duty free or at average ad valorem tariff rates less than 1 percent. Tariffs of 10 to 20 percent would thus come as a shock, both to industrial buyers of intermediate goods and to households shopping at stores like Albertsons or Walmart.

Industrial imports are concentrated in machinery, electronics, electrical machinery, vehicles and parts, wood products, transportation equipment, and fuel (petroleum and natural gas). Consumer purchases are concentrated in prepared foodstuffs (like beer and chips), fruits and vegetables (e.g., mangoes, avocados, tomatoes), meat, toys, clothing, and footwear (see figure 1 for results updated with 2025 data). US prices of all these products would increase, driven by the direct impact of 10 to 15 percent tariffs on imported goods and also by follow-on price increases by US firms making competitive goods.

Since Canada and Mexico together account for roughly 1.8 percent of value added in US consumption, tariffs of 15 percent with a 92 percent passthrough would raise the US overall consumption price level by roughly 0.25 percent (15 percent times 1.8 percent times 92 percent). The political problem for President Trump would not be so much the small increase in the average US price level as price spikes in recognizable goods, like gasoline at the pump in some locations, certain auto brands, avocados, and tomatoes. 

The US is most reliant on imports from Canada for fuel and wood products, and from Mexico for transportation equipment and vegetable products. For products that are more easily substitutable, tariffs would likely lead US consumers and producers to import more from the rest of the world—for example, from Latin America for fruits and vegetables and the Middle East and Venezuela for oil. China could also become relatively more competitive for certain industrial products, such as machinery, electronics and minerals, as well as consumer goods such as toys and sports equipment.

For Canada and Mexico, the pain of 15 percent US tariffs would be much greater. Analysis done by Warwick McKibbin and Marcus Noland shows GDP losses and increases in inflation in each country as a consequence of a 15  percent US tariff. Results were rescaled by multiplying all estimates from their analysis by 0.6 to approximate the impact of 15 percent tariffs on all imports from Canada and Mexico (Figure 2).

However, as McKibbin and Noland explain, the figures in this chart “likely underestimate the real damage to the three economies.” That is because they are highly integrated, but Mexico and Canada are “much more dependent on trade with the US” than the US is on them. Their paper notes that intermediate goods, especially in motor vehicles, cross the borders multiple times, so imposing tariffs at each stage “would be disastrous.” Mexican exports, 80 percent of which go to the US, account for 40 percent of Mexico’s GDP.

“In essence,” the authors say, “Mexico ships one-sixth of its annual economic output to the US in the form of exports.” And since many of these exports originate in maquiladoras within 30 miles of the border, wiping out the livelihoods of those working at these factories could compel some of them to migrate to the United States, undercutting US efforts to stop border crossings. For Canada and Mexico the trade and GDP losses are so great, and the concentration in affected export industries so dramatic, that their political leaders would be forced to retaliate.

But the cost of broad tariff retaliation would still be steep, even with the 15 percent tariffs. At its peak, the 15 percent tariffs could reduce the size of the Mexican economy by 1.2 percent relative to its baseline forecast, while Canada loses some 0.76 percent respectively (Figure 2). And unfortunately for Canada and Mexico, mirror-image retaliation—meaning 15 percent tariffs on all imports from the US—would be just as costly for those countries as the 15 percent US tariffs. To be sure, the costs would fall on different sectors, but the overall shock to the Canadian and Mexican economies would be enormous. For that reason alone, Prime Minister Mark Carney and President Claudia Sheinbaum are laying plans for targeted retaliation. 

US trade deficits with Mexico and Canada

Trump has long criticized merchandise trade deficits with US trading partners. His argument, which is both simplistic and misleading, is that if the value of US imports exceeds that of exports, incurring a deficit, as is the case with Mexico and Canada, the US is a loser. US automotive trade deficits with Mexico rank high among his grievances. As figure 3 shows, almost since NAFTA’s launch in 1994, which preceded the USMCA, the US has run a merchandise trade deficit with Mexico. Much of that deficit is centered in bilateral automotive trade. During the election campaign, Trump promised 200 percent tariffs on all vehicle imports from Mexico. US bilateral merchandise deficits with Canada are historically much smaller than deficits with Mexico. 

The US runs a trade surplus with both North American partners on intangible services, such as consulting and banking, however. That surplus is much larger with Canada than Mexico. The US services trade surplus with Canada increased nearly fourfold over the past 25 years, rising from an annual average of $7 billion during 1999-2003 to $26.7 billion during 2021-25. The US services trade surplus with Mexico remained relatively small during the post-NAFTA period. But Trump is more concerned with merchandise trade deficits than with any offset resulting from surpluses in services trade.

The US-Canada bilateral merchandise trade deficit rose from $25.8 billion in 2019 to $48.3 billion in 2025¹ (with a peak of $78.3 billion in 2022, possibly reflecting COVID-19). However, US-Canada auto trade shows a small but consistent surplus for the United States, while US-Canada services trade shows a consistent US surplus in the $20 billion-$30 billion range.

The US-Mexico bilateral merchandise trade deficit grew consistently, rising from $99.4 billion in 2019 to $197 billion in 2025. Autos and parts account for a large but modestly decreasing share of the bilateral deficit, almost 80 percent in 2019 and roughly 50 percent in 2025.² The services trade balance averaged about $7.5 billion between 2021 and 2025, peaking at $13 billion in 2025.

The historical experience with tariffs demonstrates that even very high tariff barriers cannot reduce the aggregate US trade deficit with all its partners.  The reason is that tariffs that discriminate against selected partners (such as Mexico, Canada, and China) can shift imports from these countries to imports from other countries, leaving the aggregate US trade deficit unaffected.  Still, Trump continues to insist that making tariffs the center of US economic policy will reduce the aggregate trade deficit.   

A separate concern in Trump’s negotiations over the USMCA was that China and other countries would take advantage of its provisions by shipping goods to Mexico or Canada in order to qualify for entry into the US. Accordingly, the USMCA imposed tighter rules of origin on autos, requiring 75 percent (up from 62.5 percent) by value of autos and parts to be made in North America for cross-border trade to qualify for zero tariffs.  In the 2026 USMCA review, Trump wants to layer a 50 percent US content rule on top of the 75 percent North American content rule. 

Despite their intentions, a strong US economy and high tariffs on US imports from China helped to sharply increase the bilateral US-Mexico and US-Canada merchandise trade deficits following the inception of the USMCA, as shown in figure 3. The US merchandise trade deficit with Canada more than doubled from an annual average of $19.6 billion during 2014-18 to $59.8 billion during 2021-25. The bilateral US-Mexico merchandise trade deficit more than doubled, increasing from an annual average of $64.9 billion during 2014-18 to $148.9 billion during 2021-25.

For the sensitive autos and parts trade balance, the situation differs between US-Mexico and US-Canada. Since the USMCA, the US-Canada trade balance for autos and parts has turned from a deficit to a small surplus. For US-Mexico trade, the annual average trade deficit in autos and parts rose from $57.1 billion in 2014-18 to $93.5 billion in 2021-25. Growth in the autos and parts trade deficit was smaller than growth in the overall merchandise trade deficit, possibly due to the tighter rules of origin on autos. While autos and parts remain a large component of the US-Mexico merchandise trade deficit, the share dropped from 88 percent (2014-18) to 63 percent (2021-25).

How US-China Trade Conflicts Have Led to Tensions with Canada and Mexico

US tensions with Mexico and Canada have resulted in part from changes in US trade with China. Since 2018, Canada and Mexico have replaced China as the largest US trading partners.   

In 2018, two-way commerce between China and the US was $659 billion in current dollars.  Canada was second, with two-way commerce of $618 billion, and Mexico was third with $610 billion. Fast-forward to 2025, based on annualized current dollar data, Mexico was first with $872 billion in two-way commerce, Canada was second with $716 billion, and China was third with $415 billion. This shift was observed by 2023, driven by the increase in two-way trade with Mexico and the simultaneous drop in purchases from China (figure 4).

Clearly the reversal of fortune between China and Mexico reflects fallout from the US-China trade war. 

Can a North American Trade War be Avoided?

President Trump has given Canada and Mexico limited time to propose solutions that would stop illicit fentanyl and unauthorized migrants from entering the US. How realistic are his demands?

Stopping flow of illicit fentanyl

It’s no easy matter for either Mexico or Canada to halt the flow of fentanyl into US territory, but much harder for Mexico than Canada.  For starters, the volume of a year’s worth of American fentanyl consumption can be transported in a single truck container.  Annually, more than 7 million trucks enter the US from Mexico, along with 75 million cars. Finding fentanyl shipments is akin to the proverbial needle in a haystack.  Moreover, for lack of a Congressional appropriation (though money was authorized), even the US Customs and Border Protection agency (CBP) does not have sophisticated sensor equipment for detecting fentanyl.

Within Mexico, the best ways to stop fentanyl production are to seize precursor chemicals arriving from China and shut down fentanyl factories. (Precursor chemicals are substances used in the illicit manufacture of narcotics and other controlled substances.) But production is centered in cartel-controlled states, namely Sinaloa, Baja California, Durango, Sonora, and Chihuahua. In his inaugural address, President Trump labeled such cartels as terrorist organizations, but it is unclear how labeling them will bring them under the heel. 

For decades the Mexican government has not been able to uproot the cartels and reclaim these states.  Eight coastal cities serve as dominant points of entry for precursor chemicals, and the Mexican navy may enjoy greater success interrupting precursors.  Yet even if President Sheinbaum totally commits to stopping fentanyl by relying on the navy (relatively free of corruption), the project will take years, not months. 

Canada’s challenge in stopping fentanyl may be hard but much easier than Mexico’s. Far less fentanyl is produced in Canada than Mexico. In 2023, CBP seized 2,800 pounds of fentanyl at the US-Mexico border, and less than 5 pounds at the US-Canada border. As with Mexico, the annual volume of arriving cross-border traffic from Canada—nearly 6 million trucks and 21 million cars—makes a border-detection strategy difficult. Moreover, a crackdown on fentanyl arrivals from Mexico may likely shift production and distribution to Canada. 

On the bright side, the federal Royal Canadian Mounted Police (RCMP, with 3,400 officers) and other federal police forces (about 1,000 officers) are relatively free of corruption and do not face a cartel problem. Conceivably, a Canadian promise to boost its federal police force and border agency by 1,000 officers to detect and destroy fentanyl production might satisfy Trump. In fact, a few days before Trump’s inauguration on January 20, 2025, the Canadian government announced plans to bolster the RCMP and other federal forces. 

Following the February 2026 lower court ruling, the Supreme Court declared the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs. That decision essentially struck down the “tariffs related to fentanyl. But a recent PIIE study raises questions about role of tariffs in preventing fentanyl deaths, which started declining after peaking during the Biden administration, with the 12-month trailing sum falling to a range of 40,000-50,000 in 2025.

Stopping illegal immigration

New enforcement measures taken by President Joseph R. Biden Jr. in 2024 reduced the monthly number of unauthorized immigrants encountered in the southwestern land border by CBP from around 270,000 in September 2023 to around 100,000 in September 2024.⁴  Nevertheless, to Trump’s advantage, illegal immigration remained a central issue in the 2024 election campaign.

 In January 2023, Trump claimed that Mexico posted 28,000 troops to deter border crossings during his presidency. While that claim was never verified, in June 2019, CNN quoted the former Mexican defense secretary Luis Sandoval as saying that 15,000 troops were posted to the border. Illegal immigration has not featured prominently in Trump’s 2026 complaints. However, a Mexican promise to post a substantial number of troops on the border for an extended period might satisfy Trump. In May 2026, the monthly apprehensions by US Border Patrol at the southwest land border were roughly 10,000.

Illegal immigration numbers from Canada, apprehensions in particular, are far smaller than from Mexico.  In September 2024, the monthly apprehensions by the US Border Patrol was 1,792, higher than the 1,335 encounters from September 2023. In May 2026, this figure of apprehensions has dropped to 528.The Canada-US border is not only much longer (5,500 miles) than the Mexico-US border (2,000 miles) but also largely unprotected by barriers.  Hence the Canadian Border Security Agency (CBSA), with a force of about 8,500 officers, is stretched thin. But illegal immigration from Canada has barely been mentioned in 2026.

USMCA REVIEW: AUTO TRADE

Under both NAFTA and the USMCA, auto imports to the US qualifying for duty-free status must demonstrate that they originated from the exporting country and were not produced elsewhere and then routed through the exporter.

Figure 9 compares the US auto trade balance with Canada, Mexico, and the rest of the world. Since 1994, the US has largely run auto trade deficits with its North American partners, though the US trade balance with Canada shifted from a deficit to a minor surplus in 2021. The deficit with Mexico has expanded rapidly since that year. The two countries together accounted for around 50 percent of US auto trade deficits with the world in 2025 (figure 9).

The US buys many more vehicles than it produces. Mexico, on the other hand, produces more than it consumes. Figures 10 and 11 show new passenger vehicle production and sales in the US since NAFTA and in Mexico since 2005, respectively. The gap between new vehicle production and sales in the US has remained relatively stable, averaging about 5.7 million vehicles per year between 2015 and 2025. In contrast, Mexico has consistently produced more vehicles than it sells domestically, with the difference starting to increase around 2010. Mexico has taken advantage of both NAFTA and the USMCA to transform itself into an export-oriented producer of auto parts and vehicles, exporting almost 3.4 million vehicles in 2025.

Trade flows are not the only indicator of economic integration among the three countries. Investment flows are also a major factor. For example, the US is the largest investor in Mexico’s auto sector, accounting for some 45 percent of foreign direct investment in 2024. Figure 12 compares gross fixed capital formation in the auto sector among the three countries. (The term covers fixed assets intended for goods and services production for more than a year.) Most of the capital expenditure in the auto sector each year has been in the US, followed by Mexico, while Canada has lagged behind. The large US capital investment in the auto sector, however, has not led to job gains in the US partly because those investments have mostly been in labor-substituting robotics and automation.

President Trump has argued that because of the USMCA the US has lost jobs to Mexico—especially in the auto industry. Auto sector employment has seen little change in the US and Canada but gains in Mexico between 2018 and 2023, increasing from around 737,000 to more than 900,000 employees. Meanwhile, total US auto employment remained roughly constant at around 1 million. In 2021, average annual auto sector compensation per employee in the US was more than six times higher than in Mexico, at roughly $78,000 compared with about $12,000.⁵ The relocation of auto production jobs driven by wage differences is a major concern among US unions and some voters. Accordingly, US labor advocates have pushed for stronger provisions for worker rights and higher wages in Mexico.

The US, Mexico, and Canada continue to negotiate renewal of the USMCA after the Trump administration “chose not to rubber stamp a USMCA renewal without addressing existing issues” on July 1, 2026. US negotiators have asked to raise the longtime regional content requirement for vehicles from 75 to 82 percent. These requirements ensure that vehicles built in the region are using more North American parts rather than ones imported from abroad (China, for example). The US has also sought a new requirement that 50 percent of the dollar value of each USMCA-eligible car be made in the US under the agreement. The United Auto Workers (UAW) union and negotiators hope that these measures, along with stronger labor laws in Mexico, will keep more auto manufacturing in the US.

USMCA Review: Critical minerals

In his first three months of office in April 2025, President Donald Trump raised tariffs on Chinese goods to 147.6 percent, prompting the government in Beijing to suspend exports of a broad array of critical minerals and magnets. The Chinese action disrupted supplies of components needed by US chipmakers, auto and aerospace manufacturers, and military contractors. Included in the restrictions are several rare earth metals produced or refined in China, which require special export licenses to be shipped.

But disruptions of supplies from China created an opportunity for negotiators in Canada, Mexico, and the US to use the renewal of the USMCA in 2026 to fill at least some of the gap opened by China’s export controls. Canada, for example, has considerable critical mineral deposits, but they are mostly undeveloped. Mexico also has the potential to mine certain minerals, but the challenge is to overcome political opposition and instability in the mining regions.

China produces 90 percent of the world’s magnesium, 67 percent of graphite, and 64 percent of rare earth elements (a subset of critical minerals),⁶ and has long dominated export supply chains in these critical minerals. Among critical minerals, the US imported some $165 million of rare earth compounds and metals in 2025, mostly from China but also from Malaysia, Estonia, Japan, and other minor sources. These imports have accounted for about 95 percent of US rare earth consumption. As shown in figure 13, US imports of other critical minerals from the world, such as nickel, lithium, cobalt, graphite, and tungsten (see panel a), are much larger in value than rare earths, totaling around 60 billion in 2025. Canada is a major supplier of critical minerals to the US market.

Figure 13 summarizes US critical mineral and rare earths imports from China, Canada, Mexico, and the world in 2020 (the last year of the first Trump administration) and 2025 (the first year of the second Trump administration). In 2025, Canada accounted for about $14.7 billion of US critical mineral imports (excluding rare earths), some 25 percent of the total. Much smaller US imports from Mexico were on par with those from China during the period 2020-2024, both on average less than $2 billion annually. On the rare earth side, China is still the main source of US rare earth imports, though its share declined in 2025.

Figure 14 summarizes world production in 2025 and known reserves of rare earths, expressed in metric tons. Evidently, many countries have reserves, but annual production is a small fraction of known reserves. Processes for mining and refining rare earths are complicated, and China has more advanced technology than most countries.

In 2021, because China restricted exports of graphite and rare earth technology, and because the minerals are essential for military and electronic technologies, the US started seeking alternative sources during the Biden administration. The Infrastructure Investment and Jobs Act of 2021 (IIJA) and other federal acts provide almost $200 million for research, mining, and stockpiling critical minerals, and subsidies for processing critical minerals. More recently, after Trump was elected to a second term in November 2024, with an agenda of wide-ranging tariffs, the Chinese Commerce Ministry announced, "In principle, the export of gallium, germanium, antimony, and superhard materials to the United States shall not be permitted."

Even after the 2021 legislation, the US remains far from national self-sufficiency and has been dependent on imports of rare earths from China. In response to this issue, the second Trump administration has invested heavily in critical minerals companies including MP Minerals Corp. (15 percent stake for $400 million),Vulcan Elements Inc. ($670 million), Trilogy Metals Inc., and Lithium Americas Corp. In 2026, the US initiated Project Vault, the $12 billion public-private partnership to stockpile critical minerals.

As early as January 2020, Canada and the US announced a Joint Action Plan on Critical Minerals. Canada holds abundant deposits of critical minerals and rare earths, but most of them await development. Mexico has known reserves of some critical minerals but not rare earths. While the Joint Action Plan attracted notice in policy circles, and while the potential for cooperation is extensive, little happened on the ground during the Biden administration (2021-2025). Like Canada, Mexico is a potential producer of some critical minerals, such as lithium, but mining is constrained both by national ownership laws and cartel violence.

The US was 100 percent reliant on net imports for 12 out of the 50 individually listed critical minerals and over 50 percent reliant for 28 of them in 2024. The value of domestic primary mine production of critical minerals was only $3.3 billion in 2024.

President Trump has seized the leverage of the war in Ukraine and proposed that Ukraine give the US rights to its critical minerals as compensation for prior and continued military support. President Volodymyr Zelensky initially rejected the proposal, but within a few days Washington and Kiev negotiated terms giving the US a stake in Ukrainian minerals. A controversial Oval Office meeting at which President Zelensky angered Trump and Vice President JD Vance by seeking security guarantees for Ukraine temporarily halted progress on such a deal. On April 30, 2025, the US and Ukraine signed an agreement to establish the jointly managed US-Ukraine Reconstruction Investment Fund, which will invest 50 percent of revenues from natural resource projects including minerals in Ukraine. The fund announced its first investment in a drone technology company in March 2026. Still, Ukraine is far from a path to serious production of critical minerals for US consumption. In fact, while Ukraine has no active mines or deposits of rare earths under development, it has large proven reserves of titanium, lithium, and graphite, and produces manganese ore, titanium ore, and titanium sponge. The logistics of mining in Ukraine are severely complicated by hostilities with Russia and by China’s recent export restrictions on technologies for processing critical minerals.

Given the second Trump administration’s strong preference for domestic production, and its use of tariffs to achieve multiple objectives, the scope for cooperation with Canada and Mexico in the critical minerals space may be limited during the next two years. Trump’s imposition of 25 percent tariffs on all imports from Canada and Mexico not USMCA compliant and 10 percent on energy products including critical minerals has, for the moment, clouded future cooperation. Possibly in reaction to the US, Canada has recently pushed forward financial grants and tax credit programs to expand the critical mineral industry.

But all three USMCA parties presumably want access to non-China sources of critical minerals. That could be partly accomplished by a new USMCA provision ensuring equal access to critical minerals produced in partner countries. As well, the US could allow Canadian and Mexican emergency access to its stockpiles (held by the Federal Emergency Management Agency, FEMA). In turn, the US could seek consultations on imports of critical minerals from China by its North American partners. These are just illustrative examples of cooperation that might be agreed in the context of the USMCA review. 

USMCA Review: Digital Services Tax

In 2024, Canada enacted a tax on US technology and digital giants like Meta (Facebook), Amazon, and Google over the advertising revenues they earn when their platforms are visited by Canadian consumers. The Biden administration objected to the tax and threatened to retaliate. President Trump renewed the threat in June 2025, suspending trade talks with Canada, a move that prompted the Canadian government to rescind the tax just days before it was to take effect on July 1, 2025. Prime Minister Mark Carney of Canada said rescinding the tax was necessary to clear the way for trade negotiations with the US on a variety of issues.

Canada’s digital services tax (DST) had long been a focus of contention with the US and was bound to play a part in negotiations to renew the USMCA running up to 2026. (Mexico has not proposed a DST like Canada’s but has similar methods to tax digital consumers and could use a DST in the future.)

Here is a primer on the issues as they relate to the renewal of the USMCA.

USMCA Review: Energy Production and Trade

Few economic sectors in North America are more integrated than energy production, investment, and trade. The integration was encouraged and accelerated first by NAFTA and then its successor, the USMCA. As a result, the US, Canada, and Mexico are all exporters as well as importers of all forms of energy. Consumers, producers, transporters, and investors all benefit from the efficiencies that flow from this economic integration. 

Can these beneficial arrangements survive the political pressures in all three countries? The answer may come in 2026.

President Trump has vowed to impose tariffs on autos, trucks, auto parts, and other goods from Canada and Mexico (and other trading partners), but he has also not ruled out negotiations to avoid these steps. Once the tariff situation is sorted out, the three countries will have to turn to the myriad rules and regulations in the USMCA as they negotiate renewal in 2026. Settling on the regulations affecting the energy sector is complicated, reflecting varied government policies emanating from Mexico City, Washington, and Ottawa, and sometimes from state and provincial capitals. Efficiency is not the overriding goal. Instead, pressures reflecting sovereignty, self-sufficiency, and climate change all come to bear, producing a patchwork of trade and investment rules that differ depending on the energy source: petroleum and refined products, natural gas, renewables, nuclear, and electricity.

The USMCA, like NAFTA, allows considerable scope for distinct national energy policies and touches lightly on trade and investment rules. The parties agreed to cooperate on energy performance standards in the USMCA, however. At the start of 2025, no tariffs were applied to cross-border energy trade, but other policies affected energy flows: behind-the-border subsidies, extraction and investment restrictions, government procurement, and authorized transport links (pipelines and transmission lines). Trump’s return to office in 2025 created new uncertainties, raising the possibility of tariffs on major trading partners on a variety of products, including oil and gas. Tariffs on Canada and Mexico were to apply only to goods that do not satisfy USMCA rules, according to the Trump administration, but even that provision was unclear as to its implementation.

If the USMCA survives once the dust settles on Trump’s new tariffs and corresponding retaliation by Mexico and Canada, the parties will need to address regulatory, investment, and nontariff barriers in the energy sector. If the parties—especially the Trump administration—are disposed to further North American economic integration, then buy-national and invest-national preferences may be relaxed, and a presumption may be created favoring cross-border pipelines and electricity transmission. But it seems more likely that existing barriers will survive the 2026 USMCA review. 

By way of background, figure 16 summarizes US cross-border energy trade with Canada and Mexico in 2025, covering petroleum and refined products, natural gas, coal, nuclear materials, and electricity. Imports of crude petroleum and petroleum products from Canada constitute a large share of the US energy trade deficit with its USMCA partners.

Nuclear 

Nuclear power has two virtues: no CO₂ emissions and reliable electricity 24/7 whatever the weather. Against these virtues are huge cost overruns in plant construction and formidable political obstacles to safe waste disposal. Consequently, the nuclear share in US and Canadian  power supply has remained constant at around 20 percent and 15 percent, respectively, for 20 years. Mexican nuclear power supplies around 5 percent of the country’s energy needs.

The IRA offers tax credits and loan guarantees for US nuclear power. Bill Gates, founder of Microsoft, and other entrepreneurs have put their money behind novel nuclear power designs. Nevertheless, given safety concerns and strict permitting requirements, it seems unlikely that nuclear power will surge as a share of the North American supply. Meanwhile, no nuclear issues are apparent in the USMCA review.

Electricity 

Transmission issues bedevil electric power both within each country and across the US-Mexico and US-Canada borders. The technology of electricity transmission is well understood, but the vexing problem is that transmission lines are unpopular. In the US, multiple local, state, and federal agencies must approve any major new transmission line. Approval can take seven years or longer. Solar and wind farms located in wide open rural spaces consequently face delays in sending power to urban areas. The problem was well understood when the IRA was enacted, yet Congress failed to include federal preemption of state and local permitting restrictions in the new federal law. However, one of Trump’s Executive Orders indicates that his administration might override state and local objections to high voltage transmission lines.

The provincial-owned firm Hydro Quebec exports large quantities of electricity to New York and the New England states, while hydropower companies in Ontario and British Columbia export to other northern US states. Texas exports some electricity to Mexico. Other than the customary obstacles associated with the construction of new transmission lines, there are no apparent USMCA issues in cross-border electricity flows.⁹

Despite the absence of disputes in the cross-border exchange of electricity under the USMCA, these flows have become controversial in the midst of US tariff measures threatened or imposed by the second Trump administration against Mexico and Canada. After the temporary suspension of US tariffs on Canada and Mexico, but in light of the continuing threat, Ontario Premier Doug Ford threatened a 25 percent tax on electricity sales that would affect New York, Michigan, and Minnesota. But the tax was not implemented as tensions surged after President Trump threatened to double the expected 25 percent tariffs on steel and aluminum in counterretaliation to Ford’s tax threat. In June 2025, the 50 percent tariffs were imposed on selected steel, aluminum, and derivative products, with the list of covered derivative products expanded in August 2025 and further adjustments made in 2026.

The use of established USMCA processes and unilateral tariff and tax measures on energy trade flows will be highly relevant during the USMCA review. Even though some sources of energy have remained free of tensions under the USMCA, heavy US tariffs and nationalistic Mexican policies are both undermining North American energy cooperation. 

USMCA Review: Environmental Issues

At least since the 1990s, environmental groups in the US and in many of its trading partners have raised concerns about trade agreements. These groups maintain that trade accords wipe out farming livelihoods and encourage destruction of forests, carbon emissions, mining, drilling, and other forms of pollution. More specifically, the criticism centers on the claim that foreign investment in developing economies allows companies to challenge local environmental laws and regulations.

Environmental issues were an afterthought when the original NAFTA was negotiated between President George H.W. Bush, President Carlos Salinas of Mexico, and Prime Minister Brian Mulroney of Canada. In his presidential campaign that year, Governor Bill Clinton of Arkansas was wary of embracing NAFTA because of labor and environmental concerns among Democrats. After he was elected, his administration negotiated two “side agreements” for NAFTA—one on labor, the other on environment—to answer the misgivings. Negotiations centered on the concern that Mexico would relax its environmental and labor standards to attract foreign investment. Accordingly, the two side agreements called for NAFTA members not to lower their standards to induce investment. Even so, US ratification of NAFTA in November 1993 was a hard fought battle, with 234 yeas and 200 nays in the House of Representatives. Among Democratic members, only 102 voted in favor and 156 opposed.

The two side agreements ensured ratification of the NAFTA package, but their results in subsequent years disappointed labor and environmental advocates. The environmental side agreement established a Commission on Environmental Cooperation (CEC) in Montreal. When an environmental complaint is submitted about practices in a member country, the CEC was supposed to develop a factual record if it deemed an investigation is warranted. The factual record may prod action and can inform consultation but does not compel resolution of the grievance. According to the CEC, some 107 submissions were received between 1995 and 2024, and 27 factual records were created.¹⁰

The NAFTA environmental agreement focused on local issues, like disposal of hazardous waste and protection of wildlife, but did not call out CO₂ emissions or climate change. Yet between NAFTA implementation in January 1994 and its renegotiation during the first Trump administration in 2018, climate change escalated to the number one global environmental issue. As a climate skeptic, however, Trump announced on June 1, 2017, that the US would withdraw from the Paris Agreement on climate change signed during the administration of President Barack Obama in 2015. Under the terms of the agreement, however, US withdrawal did not become effective until November 2020, but once Trump announced withdrawal, the US ceased to actively participate in Paris Agreement proceedings.¹¹ President Biden rejoined the international pact in 2021, but Trump again announced US withdrawal, effective January 2026, when he reclaimed the White House in January 2025.

Consequently, it came as no surprise that climate change was not mentioned during USMCA negotiations during President Trump’s first term in 2018. Nevertheless, Chapter 24 of the USMCA enumerates seven multilateral agreements and several additional environmental concerns (air pollution, maritime pollution, fish stocks and fishery management, invasive species, and forestry practices) that member countries should respect. It extended the CEC secretariat and the provisions for submissions and factual records and also added a dispute panel system. At the end of the day, like its NAFTA predecessor, the USMCA does not authorize penalties for breaching multilateral agreements or worsening enumerated environmental conditions.

Chapter 20 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), negotiated by 11 countries, is broadly similar to Chapter 24 of the USMCA, calling for national observance of multilateral agreements and other environmental concerns. The CPTPP serves as the successor to the Trans-Pacific Partnership (TPP), which the US left on January 30, 2017, at Trump’s direction. It’s worth noting that the TPP environmental chapter did not include the words “climate change.” Instead, it called for the “Transition to a Low Emissions and Resilient Economy.” President Obama’s negotiators refused to use the words “climate change” for fear they would cost needed Congressional ratification votes. But in any event the TPP was concluded too late in Obama’s second term for ratification.

The content of the TPP environmental chapter was essentially replicated in the CPTPP,¹² its successor after the US withdrew. Like USMCA Chapter 24, CPTPP Chapter 20 creates submission and factual reporting procedures, encourages consultations between parties, and establishes a dispute panel system—but does not authorize penalties. Mexico and Canada are both CPTPP members.

Given this background and similarities between USMCA and CPTPP chapters, and the policies of the Trump administration, it seems highly unlikely that the North American partners will make substantive changes to existing USMCA environmental obligations.

USMCA REVIEW: Investment Disputes

Booming trade in goods and services between the US and Mexico has received most of the attention by analysts of economic interdependence. Less noticed, perhaps, has been the growth of mutual foreign direct investment (FDI), led by US firms holding nearly $159 billion of FDI stock in Mexico in 2024, making the US the top source of foreign investment in that country. Much of that investment has been in manufacturing automobiles and auto parts for export to the US, as well as food and beverage products also for export.

This investment has been facilitated over the years by the NAFTA, which was proposed in the early 1990s by President George H.W. Bush and negotiated and enacted by President Bill Clinton in 1994. To encourage such investment, NAFTA contained strong provisions to protect US investors from expropriation and other arbitrary actions in Mexico, which had a history of nationalizing the energy assets and interfering in other sectors of the economy with sometimes arbitrary regulations.

When NAFTA was renegotiated in the first term of President Trump, however, his top trade envoy, Robert Lighthizer, then the protectionist-inclined trade czar, took a dim view of the investment arbitration provision in NAFTA. His view was that the provision provided an implicit subsidy for US firms to invest abroad by reducing the risk of arbitrary behavior by host governments with uneven judicial systems and weak property rights. Lighthizer preferred that US firms themselves bear the risk of investing in Mexico—or better invest in America. Consequently, Article 14 of the USMCA significantly curtailed investment protection in Chapter 11 of NAFTA, with quite different provisions as between US-Mexico and US-Canada disputes.

US-Mexico. As between the US and Mexico, for most sectors under Article 14 of the USMCA, new cases of unfair treatment of US investments could only be brought by citing denial of national treatment or most favored nation treatment, or by citing direct expropriation. US investors could not invoke a previous provision of NAFTA that allowed for making the broader claim of denial of “fair and equitable treatment.” Moreover, foreign investors had to first seek relief in the Mexican judicial system before invoking USMCA Article 14. However, under Annex 14-E, new cases in the important oil and gas sector and four other sectors entailing government contracts—electric power, telecommunications, transportation, and transportation infrastructure (namely roads, railways, bridges, and canals)—could be based on denial of fair and equitable treatment as well as the traditional discrimination and expropriation grounds, and they need not be preceded by litigation in Mexican courts.

For three decades, Mexico has benefited from reassuring foreign investors that their apprehensions over the Mexican judicial system could be allayed by resort to arbitration. In fact, after NAFTA entered into force in January 1994, Mexico signed 31 bilateral investment treaties and 11 free trade agreements, all containing investment protection provisions. Since 1997, some 55 investment claims have been brought against Mexico under these treaties and agreements, 40 of them by US and Canadian investors. Almost half the claims have been brought since 2018, the year USMCA negotiations were concluded. Yet, as shown in figure 21, since NAFTA, FDI to Mexico has boomed. In the past decade, about half of inward FDI to Mexico has arrived from countries other than the US and Canada—mostly European countries and Japan. As of 2024, arbitrators have awarded $341 million claims against Mexico, a comparatively small sum even if investor protection clauses only motivated as little as 5 percent of inward FDI flows.

In 2026, as the USMCA review is under way, crosscurrents of political and economic nationalism in the US will shape Mexico’s inward FDI. Mexico is laboring under cartel violence, murders of visiting US tourists, new US tariffs, and the constitutional changes in 2025 that enabled the political election of judges. On the other hand, rising anti-China sentiment in the US may encourage companies that export to the US to relocate to Mexico, a trend that the Trump administration might deem as positive. Mexico may well decide that retaining, and even strengthening, the investor protection provisions of Article 14 will best serve its national interests. If so, neither the US nor Canada will object. On the other hand, if Mexico decides that Article 14 creates more hassle than its contribution to FDI inflows is worth, neither the US nor Canada seems likely to defend investor protection.

US-Canada. Canada is an even bigger location for US FDI than Mexico, in part because there are fewer concerns about the safety of these investments. US FDI stock in Canada in 2024 was $460 billion, making the US once again the biggest foreign investor in that country. Investments are concentrated in manufacturing (again much of it for export to the US), finance, and insurance, which take advantage of Canada’s abundance of skilled workers and natural resources, and the reliability of Canada’s parliamentary system of government. Nevertheless, or perhaps because Canada was considered a reliable investment partner, investment protections have been eased by the USMCA compared with NAFTA. Under USMCA Annex 14-C, the prior NAFTA Chapter 11 provision is only available for “legacy” cases, involving pre-USMCA investments. Legacy claims had to be launched within three years after NAFTA was terminated, namely before July 1, 2023. No new claims can be brought for cases arising after the USMCA entered into force in June 2020. Consequently, Article 14 of the USMCA significantly curtailed investment protection previously available under Article 11 of NAFTA.

The most important legacy case, citing NAFTA Chapter 11, but brought under USMCA Annex 14-C, was the Keystone XL pipeline, designed to bring oil from Alberta Province to Nebraska, where it would then be carried through established pipelines to Houston refineries. Under a series of Executive Orders, beginning in 1968, US presidential permits are required for oil and gas pipelines, and electric transmission lines, that cross either the Canadian or Mexican border. In November 2015, reflecting the protests of environmentalists and Native Americans, President Barack Obama denied a permit for the Keystone XL pipeline. In March 2017, President Trump reversed course and issued the permit, allowing construction to commence. But when he entered the White House in January 2021, President Biden revoked the permit. TC Energy, the Canadian sponsor of Keystone XL, then launched its NAFTA Article 11 legacy case, claiming a loss of $15 billion. By a 2-1 vote, the arbitrators decided against TC Energy. The decisive argument was that Biden’s permit denial occurred after NAFTA was terminated in June 2020, and therefore the claim was not susceptible to adjudication under USMCA Annex 14-C. Needless to say, TC Energy felt cheated by the confusion surrounding these permitting decisions and the arbitration outcome. President Trump signaled his willingness to reverse the Biden permitting decision and approve the Keystone pipeline, but TC Energy has not revived the project. Trump granted approval in April 2026 for the construction of the similar Bridger Pipeline Expansion, sometimes called “Keystone Lite.”

Nevertheless, hostility to investor protection provisions, expressed not only by Lighthizer but also by numerous US and Canadian academic commentators, practically ensures that there will be no revival of NAFTA Chapter 11 in the course of US-Canada talks during the USMCA review. In fact, at the very end of its term in office, the Biden administration sought to further weaken investor-state dispute settlement (ISDS) protections under US trade agreements, including the USMCA.

However, some 38 Canadian trade agreements, apart from the USMCA, contain foreign investor trade protection provisions. As figure 22 shows, FDI to Canada has grown significantly since NAFTA was ratified in 1994. But investor protection provisions in trade agreements probably make little difference to foreign investment in Canada.

Likewise, the US has some 50 agreements in force containing investor protection provisions with countries other than Mexico and Canada. Again, as figure 22 shows, inward FDI to the US has grown steadily since NAFTA was ratified. But investor protection provisions in trade and investment treaties probably made no difference to the pace of expansion. It is noteworthy that the level of inward FDI flows has not changed much in any of the USMCA partners over the past decade.

Canada-Mexico. Under USMCA Article 14, Annex 14-C, only legacy cases launched prior to the USMCA’s entry into force in June 2020 can be brought between Canada and Mexico. However, since both countries are signatories to the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP which entered into force in 2018, Canadian and Mexican firms can seek investor protection arbitration under CPTPP rules.

China-Mexico. Chinese direct investment in Mexico has grown significantly, expanding already strong trade ties in the manufacturing sector. This investment flow has triggered mounting US concerns that Mexico has become a “backdoor” for Chinese goods entering the US market, particularly in the transportation sector (mainly autos and parts). Seeking to allay US concerns, Mexico points out that investment from China is small compared with investment from other regions. In a 2024 report, Rhodium Group identified some $13 billion of Chinese FDI transactions into Mexico, far higher than a stock of $1.8 billion recorded by the OECD and $4.9 billion recorded by China’s Ministry of Commerce (MOFCOM). While this gap is partly due to investments entering through offshore entities based in Hong Kong or elsewhere, an upward trend in FDI from China and Hong Kong has been observed since the USMCA (figure 23). This trend has been particularly noticeable since 2022.

The role of China in exporting to the US through the “backdoor” of Mexico has compelled the Trump trade team to call for stricter “rules of origin” requiring Mexican exports to contain higher levels of North American and US inputs to qualify  for trade preferences, particularly in the auto sector.  As well, Trump may insist that Mexico impose limits on Chinese investment.

USMCA Review: Softwood Lumber

Canada and the US have been fighting over Canadian softwood lumber exports for at least four decades—possibly setting a record for trade disputes. Successive US administrations have charged that Canadian subsidies unfairly bolster its lumber industry and promote dumping into the US market.

A central issue is how to take into account the structural differences of the industries in both countries. The US claim that Canada unfairly subsidizes its lumber industry stems from the fact that most Canadian forests are publicly owned. Canada’s provincial governments in British Columbia and elsewhere charge prices for cutting timber (known as stumpage fees) that the US argues are so low they act as a subsidy for Canadian producers. In the US, timberlands are mostly in private hands, located in politically important states in Georgia, Alabama, the US northwest, and Maine. Private forest owners are free to charge higher prices for harvesting trees when demand is strong.

These differences have led to a succession of countervailing duty and antidumping actions by the US, despite the desire of US homebuilders to purchase lower-priced lumber from Canada. The disputes have echoed through many rounds of negotiations, starting with the Canada-US Free Trade Agreement (CUSFTA) in 1988 and continuing through NAFTA in 1994, and finally the USMCA under President Trump in 2018. All of these trade deals failed to devise a permanent solution to softwood lumber trade. Temporary agreements have been reached, only to expire, reviving the long-running grievances.

The US imported an average of $6 billion of softwood lumber annually from Canada during 2014-26Q1—mainly used for home construction and all subject to US countervailing and antidumping duties (figure 25, left panel). The import volume of lumber from Canada during this period has been steady at around 30 million cubic meters (figure 25, right panel), which is equivalent to approximately 13 billion board feet. Current combined duties range from 26.47 to 47.59 percent. A 25 percent tariff or more on top of that, as envisioned by Trump, would make the total much higher.

Because of the failure of negotiators to resolve lumber issues, disputes have followed their own meandering track in the US International Trade Commission (USITC), the US Court of International Trade, binational arbitration under CUSFTA and NAFTA, the WTO Dispute Settlement Body, and direct negotiations between US and Canadian officials. Given this history, officials may choose to ignore softwood lumber in any review of the USMCA. Figure 26 shows lumber prices over the period 2014-26 (through June 2026, at the time of writing), with two notable peaks in May 2021 and early 2022, partly due to the rise in housing demand during the pandemic. Between July 2024 and February 2025, US prices rose from around $420 per thousand board feet to around $600. Widespread damage from hurricanes and wildfires added to the lumber demand. Suspending penalty duties on imports from Canada would be a useful anti-inflationary measure, if the Trump administration gave greater weight to the interests of households than the interests of softwood lumber plantation owners in the southern states and the Pacific northwest.

Yet disputes have proven intractable for at least four reasons:

• The US and Canadian softwood lumber industries are critical components of regional economies in both countries—southern US states such as Georgia and Alabama, and Washington and Oregon in the northwest US; and British Columbia, Ontario, and Quebec in Canada.
• There is little or no cross-border ownership of lumber companies that might otherwise mitigate trade disputes. Moreover, Canada does not permit the export of whole logs.
• As mentioned above, Canadian timberlands are almost entirely owned by provincial governments, and stumpage rights are sold to Canadian companies at administered prices rather than auctioned at market prices. By contrast, in the US, lumber companies either own the timberland or purchase stumpage rights at market prices. Canadian stumpage prices are consistently cited as a subsidy.¹⁸
• While import restrictions perhaps added $18,600 to the cost of a new American home between August 2021 and April 2022, the voice of the National Association of Home Builders is no match for the US lumber industry.

Past episodes in the softwood lumber saga have been temporarily resolved, after extensive litigation, in various ways.¹⁹ The first episode, initiated in 1982 and known as Lumber I, resulted in a USITC finding of no injury to the US industry. The second episode, initiated in 1986 and known as Lumber II, resulted in a Department of Commerce–imposed 15 percent countervailing duty and a USITC finding of injury. The duty was waived following a memorandum of understanding between the US and Canada requiring the provinces to apply export duties on softwood lumber exports. The third episode, initiated in 1991 and known as Lumber III, resulted in a Commerce Department–imposed 6.51 percent countervailing duty and a USITC finding of injury, but the injury finding was reversed by a binational panel. Subsequently, in 1996, to ward off a new case, the US and Canada signed a five-year Softwood Lumber Agreement, which imposed an annual quantitative limit of 14.7 billion board feet on Canadian exports. That agreement expired in 2001, clearing the way for the legal odyssey known as Lumber IV.

Responding to the US industry petition, in 2002 the Commerce Department found a combined countervailing duty and antidumping duty rate of 27.22 percent. That decision was appealed by Canada first to the WTO and then to a NAFTA binational panel. After multiple hearings, both sets of arbitrators largely decided in Canada’s favor. After more legal twists, Commerce cut the combined penalty duty rate to 10.8 percent. In March 2006, at Canada’s urging, a new NAFTA panel ruled against the duty, and a second Softwood Lumber Agreement was concluded. By that agreement, the US refunded $4 billion of penalty duties that had been collected from Canada, and new export controls were spelled out. While controversial, the deal was ultimately approved by the Canadian House of Commons. Subsequent arbitrations in the London Court of International Arbitration declared that Canada had not totally implemented its side of the bargain, and Canada complied. The second Softwood Lumber Agreement expired in 2015, but the US agreed not to launch a new case for one year.

In 2016, the US industry initiated new countervailing duty and antidumping duty cases, and the finding of the Commerce Department and USITC was ultimately in the industry’s favor. Penalty duties of 17.99 percent were initially imposed, but subsequent modifications lowered the combined duty to around 14.4 percent in 2023. Meanwhile, Canada opened fresh arbitration cases in the WTO and under CUSFTA and NAFTA provisions. In August 2023, Mary Ng, Canadian Minister of Export Promotion, International Trade and Economic Development, characterized the duties as “unfair, unjust and illegal” but declared that “Canada remains ready and willing to discuss a negotiated outcome to the dispute that provides the stability and predictability the sector needs to ensure its continued growth and success.”

The 2024 presidential election year was not an auspicious time to craft the third Softwood Lumber Agreement. Nor are the arbitration cases launched by Canada likely to yield a mutually agreed solution. The determination of President Trump to wage a trade war with Canada almost certainly ensures the continuation of trade remedy cases and US penalty duties on softwood imports. In fact, on March 1, 2025, Trump instructed the Commerce Department to launch a new antidumping investigation and at roughly the same time added lumber to a list of specific products that would soon be subject to 25 percent tariffs on all imports from Canada.

In theory, the softwood lumber controversy could be resolved by something resembling the 1996 Softwood Lumber Agreement. That pact dropped penalty duties but imposed a quantitative limit (14.7 billion board feet) on Canadian exports. While quantitative limits have the undesirable feature of eliminating price competition from Canadian imports once the quota is reached, they seem less susceptible to protracted disputes than import duties or export taxes. To provide flexibility in the event of a severe price spike—as happened between March 2020 and April 2021 when prices rose from around $340 to $1,240 per thousand board feet as shown in figure 26—the US president should have the power to relax the quota. For greater stability, a fourth Softwood Lumber Agreement, if negotiated, should have a life span of 10 years, approximately the life of the USMCA before its agreed 16-year life (subject to renewal) comes to an end.

NOTES

¹Data for 2025 throughout this text refer to full-year trade flows covering the entire 2025. Data retrieved from USITC DataWeb reflect statistical revisions made on June 20, 2026.

²In comparing auto sector data from the Congressional Research Service and the Census Bureau’s FT 900, two key observations stand out. First, the data from the Congressional Research Service and FT 900 are similar, showing consistent trends between the two sources. Second, compared with the collected data above, FT 900 shows moderately larger trade deficit for autos and parts with Mexico, while it remains almost the same for Canada.

³For figures 5-8, nominal trade values are expressed in current US dollars, and real trade figures are expressed in 2019 prices. Real figures are thereby corrected for price level changes in US imports and exports. Import price changes for Chinese merchandise reflect the added cost paid by US households and firms of tariffs imposed by the Trump and Biden administrations. 

⁴The figures here are the total US Customs and Border Protection (CBP) encounter numbers, which include US Border Patrol (USBP) Title 8 apprehensions, Office of Field Operations (OFO) Title 8 inadmissible volumes, and Title 42 expulsions.

⁵Average annual compensation per employee is estimated by dividing total compensation of employees by total employment in the auto sector, adjusted for the respective exchange rates. 

⁶A list of rare earths and their principal uses can be found here.

⁷The percentage is calculated by comparing the average monthly per-unit retail price of milk in 2024 between Canada and the US.

⁸See chapter 5 in Gary Clyde Hufbauer and Jeffrey J. Schott, Local Content Requirements: A Global Problem.  Policy Analyses in International Economics (Washington: Peterson Institute for International Economics, September 2013). 

⁹In November 2018, the US and Canada exchanged a letter affirming national treatment with respect to cross-border electricity transmission.

¹⁰For an assessment of the early CEC reviews of environmental disputes under NAFTA, see Gary Hufbauer, Daniel Esty, Diana Orejas, Luis Rubio, and Jeffrey Schott, NAFTA and the Environment: Seven Years Later, Policy Analyses in International Economics 61 (Washington: Institute for International Economics, October 2000).

¹¹However, the US still submitted climate data to the Paris Agreement officials, per requirements under the UN Framework Convention on Climate Change (UNFCCC).

¹² The content of the environmental chapter of the TPP is discussed in Cathleen Cimino-Isaacs and Jeffrey Schott, eds., Trans-Pacific Partnership: An Assessment, Policy Analyses in International Economics 104 (Washington: Peterson Institute for International Economics, July 2016).

¹³Marketing year is the 12-month period beginning just after harvest during which a crop may be sold domestically, exported, or put into reserve stocks.

¹⁴The calculation is a rough estimation comparing Mexico imports of US corn in 2025 to Mexican corn production in the 2025/2026 marketing year.

¹⁵The OECD procurement negotiations, involving a small number of developed countries, were shifted to the GATT during the Tokyo Round.

¹⁶The 21 parties to the GPA are: Armenia, Australia, Canada, the European Union (and its 27 member states), Hong Kong China, Iceland, Israel, Japan, the Republic of Korea, Liechtenstein, the Republic of Moldova, Montenegro, the Netherlands with respect to Aruba, New Zealand, Norway, Singapore, Switzerland, Taiwan, Ukraine, the UK, and the US. See USTR’s webpage on the WTO Government Procurement Agreement.

¹⁷Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA: An Assessment, Revised Edition, Institute for International Economics, Washington DC, October 1993.

¹⁸The US International Trade Commission publishes an annual report that details Canadian and other subsidies to foreign lumber producers.

¹⁹For more on the history, see Congressional Research Service (CRS) Reports for Congress, Softwood Lumber Imports From Canada: History and Analysis of the Dispute and Softwood Lumber Imports from Canada: Current Issues.

Credits

Edited by Madona Devasahayam, Helen Hillebrand, and Steven R. Weisman
Design and production by Samantha Elbouez, Melina Kolb, and Alex Martin

* Zachary Resneck is a summer 2026 PIIE intern.

PHOTOS

Elena Mozhvilo/Unsplash
Pixel-Shot/Adobe Stock
Avi Waxman/Unsplash
Mark Stebnicki/Pexels
Balazs Simon/Pexels
James Wheeler/Pexels
Los Muertos Crew/Pexels
Tom Fisk/Pexels
Cottonbro studio/Pexels
Denes Kozma/Unsplash
Wouter Supardi Salari/Unsplash
Evergreens & Dandelions/Unsplash
Jose Luis Stephens/Adobe Stock
Vidar Nordli-Mathisen/Unsplash
Looker_Studio/Adobe Stock
Oscar Nord/Unsplash
Anton Gvozdikov/Adobe Stock
Gene Gallin/Unsplash
Carlos Aranda/Unsplash