Strengthening US competitiveness through a renewed USMCA

Introduction

One of the most consequential economic achievements of President Donald Trump’s first term, the United States–Mexico–Canada Agreement (USMCA), modernized North American trade and secured enforceable commitments from Canada and Mexico to support American workers and strengthen U.S. manufacturing. The agreement established robust intellectual property protections, cutting-edge digital trade rules, expanded market access in key sectors, and strengthened rules of origin to ensure that the benefits of preferential trade accrue to North American producers. Extending USMCA this year and restoring duty-free treatment for all qualifying goods—while aligning with Mexico and Canada on policies to strengthen economic security—will be essential to preserving supply chain resilience, sustaining U.S. economic growth, and strengthening America’s competitive position against China in critical industries.

Benefits of the trilateral agreement

The USMCA has delivered measurable benefits for the U.S. economy. Trade with Canada and Mexico now supports more than 13 million American jobs across manufacturing, agriculture, and services.¹ Since USMCA entered into force, Canada and Mexico have invested hundreds of billions of dollars in the United States, reinforcing integrated North American supply chains and driving regional trade to nearly $2 trillion in goods and services annually.² Together, Canada and Mexico purchase more U.S. manufactured goods than the next dozen U.S. trading partners combined and represent the top export markets for U.S. agricultural products.³⁴

Maintaining USMCA as a trilateral agreement is essential to preserving the United States’ economic advantage in North America because key sectors of the U.S. economy depend on deeply integrated supply chains. In 2024, more than half of U.S. manufacturing trade with Canada and Mexico occurred between related parties, reflecting deeply integrated production systems, particularly in sectors such as automotive manufacturing, where components cross borders multiple times before final assembly.⁵ Consistent with this integration, the U.S. International Trade Commission estimates that the United States received roughly 80% of vehicle manufacturing investment in the USMCA region between 2019 and 2023.⁶

Strategic importance

During President Trump’s second term, USMCA has taken on increased strategic importance. As global trade has become more fragmented, the agreement has provided a stable economic foundation for North American firms and workers, while strengthening supply chain resilience and reducing reliance on China and other non-market economies.

The upcoming review of the agreement presents an opportunity for the administration to deepen cooperation on shared challenges and to align more closely in response to the policies and practices of non-market economies, including China, that undermine fair competition and market-based investment.

The parties should use existing USMCA mechanisms, including the Competitiveness Committee, and work closely with the private sector to improve alignment on export controls, investment screening, critical minerals supply chains, trusted technologies, and excess capacity. For example, the partners could strengthen information-sharing and coordination on foreign investment review to ensure that subsidized or state-directed investments do not exploit duty-free access to the North American market. Greater alignment would reinforce trust in integrated North American supply chains and strengthen the long-term competitiveness of the USMCA region.

USMCA-compliant trade should be duty-free

To fully realize the benefits of USMCA and sustain the competitiveness of North American supply chains, the United States must preserve the duty-free treatment that lies at the core of the agreement. Predictable, tariff-free access is not a discretionary benefit; it is the fundamental incentive that underpins investment decisions, sourcing strategies, and the integration of regional supply chains. Absent confidence that qualifying goods will move duty-free across borders, companies are less likely to invest in North America. Goods that comply with USMCA’s rules of origin should be exempt from tariffs not expressly authorized by the agreement, including those imposed pursuant to Section 232 of the Trade Expansion Act of 1962 and the International Emergency Economic Powers Act (IEEPA). Applying such measures to USMCA-compliant trade undermines the agreement’s negotiated balance, erodes its credibility, and weakens the very supply chains USMCA was designed to strengthen.

Restoring and maintaining duty-free treatment for all USMCA-compliant goods would reinforce sourcing and investment within North America, reward adherence to high-standard trade rules, and support the agreement’s built-in mechanisms for ongoing cooperation and improvement. Canada and Mexico have demonstrated a willingness to align with U.S. efforts to address non-market policies and practices of third countries, including through coordinated approaches on products subject to Section 232 measures, such as steel and aluminum. Preserving tariff-free treatment within USMCA is therefore not only economically sound, but strategically essential to building a cohesive North American response to global trade distortions.

Conclusion

Ultimately, USMCA remains a critical driver of success for the U.S. business community. The trilateral agreement enables American businesses to compete more effectively against non-market economies while securing supply chains for critical industries. To preserve these advantages, the United States should confirm its intent to extend USMCA this year and fully restore preferential trade among the parties.