Using the USMCA review to strengthen regional integration
Bottom lines up front
- With the US-Mexico-Canada Agreement up for review in July, the parties have an opportunity to keep North America globally competitive.
- The steel and automotive sectors have proven most contentious in the USMCA’s six years.
- Gradually localizing more production, clarifying tariffs, and simplifying rules of origin would level the playing field.
The moment: Integration under strain
The trade agreement underpinning North American competitiveness and economic security is up for review in July 2026. The United States-Mexico-Canada Agreement (USMCA), approaching its sixth anniversary, is being revisited by the three parties through a joint review process that will determine whether the agreement is renewed for another sixteen years, is reviewed annually, or heads for termination in 2036.
In the current environment, renewed uncertainty—manifested in tariffs and unclear future trade conditions for Mexican exports to the United States—is undermining the long-term investment environment required for advanced manufacturing. The USMCA review provides an opportunity for policymakers and industry leaders to converge around a shared concern: how to strengthen competitiveness and supply chain resilience in a more contested global environment, while preserving the benefits of regional integration.
The Atlantic Council’s Adrienne Arsht Latin America Center established the Binational Task Force on Economic Security and Competitiveness to support that effort through a practical dialogue anchored in implementation. The task force’s goals include identifying areas where public and private sector actors can move from diagnosis to execution through targeted measures to strengthen regional sourcing, improve origin verification, reduced policy uncertainty, and align trade and security tools around a shared binational framework.
The USMCA review presents an opportunity for the parties to strengthen economic security and competitiveness, rather than relitigating the agreement’s core principles, which would put the region at risk of falling behind competing blocs. To that end, the task force focused first on rules of origin and content requirements in essential industries such as advanced manufacturing and metals.
Current tensions: Security tools versus integration acheivements
Mexico has faced Section 232 steel tariffs across three successive US administrations: the original 25 percent tariffs imposed in May 2018; their effective continuation—with only temporary and partial exclusions—under the Biden administration, which in July 2024 added a melted-and-poured condition for Mexican steel; and the current administration, which in February 2025 eliminated all country exemptions and in June 2025 raised the rate to 50 percent. The total time the steel tariffs have been in place now exceeds seven years.
The Mexican government and private sector have argued that reducing these tariffs would strengthen, not weaken, US industrial capacity and security by reinforcing integrated supply chains.
A similar structural issue affects automotive rules of origin, where differing interpretations between the United States and Mexico have created persistent friction. In December 2022, a USMCA dispute settlement panel ruled against the United States in the case on automotive rules of origin, finding that the US requirement for separate calculation of the regional value content of core auto parts was inconsistent with the agreement’s roll-up provision. The ruling is final and binding. The United States has not complied, but Mexico and Canada have not exercised their right to suspend benefits. This creates an opportunity for the parties, with private-sector support, to clarify supply chain components and prevent future disputes.
Policy pathways: From diagnosis to execution
While the automotive and metals sectors have been a source of tension in the US-Mexico trade relationship, they also offer opportunities to strengthen North American competitiveness and industrial leadership through the 2026 review.
The following recommendations from the task force outline practical steps to address major gaps in these sectors:
1. Strengthening regional production capacity
A central challenge is reducing dependence on extra-regional inputs while recognizing differing levels of substitutability across components. High-tech inputs such as batteries, specialized chips, and automotive printed circuit boards remain difficult to replace and may require a decade or more to localize. In contrast, less complex components, including plastics, steel, and commodity parts, can be substituted in the near term.
Advancing regional production of high-tech goods should follow a phased approach. Initial efforts should focus on downstream stages such as assembly and packaging, followed by gradual expansion into more complex upstream production. A cluster-based strategy, rather than firm-level incentives, can help build complementary ecosystems across the region.
Sustained capital investment and workforce development are essential, particularly for engineers and specialized technicians. Experience following the COVID-19 pandemic shows that regional production of certain inputs is feasible but requires stable policy frameworks and long-term commitment.
2. Clarifying and simplifying automotive rules of origin
USMCA rules of origin have produced mixed outcomes. According to the US International Trade Commission, they have supported US parts and materials producers while increasing costs for vehicle manufacturers and shifting some imports toward non-USMCA countries.
Raising regional content requirements or increasing their complexity would likely lead to further vehicle price increases, as earlier estimates have already demonstrated. This risks undermining North American competitiveness both domestically and in export markets.
The challenge is compounded by evolving US trade policy toward third countries. Lower tariffs applied to major auto exporters such as Korea, Japan, and potentially the European Union create asymmetries: the products of North American producers face stringent regional content rules, while imports do not—and imports may benefit from lower production costs in global markets.
Any adjustments to rules of origin should reflect actual regional capabilities. Flexibility should be maintained for critical inputs that cannot be readily sourced within North America.
At the same time, simplifying compliance requirements is essential. Streamlined procedures would reduce administrative costs and enable greater participation by small and medium-sized enterprises. Emerging technologies, including AI, could support more efficient verification and oversight.
3. Eliminating Section 232 tariffs for supply chain integration
Tariffs and quotas related to Section 232 negatively affect US industries that rely on Mexican exports for their production, and consumers of final products. Effected sectors include steel, aluminum, autos, auto parts, and certain semiconductors.
One potential alternative is the development of a Common External Tariff (CET) on steel. While challenging due to differing trade agreements and tariff commitments, coordinated use of anti-dumping and countervailing duty measures could provide a pathway toward alignment.
A CET applied to steel and selected derivatives could reduce intra-regional distortions, combat transshipment and excess global capacity, and reinforce existing trade complementarities, including the US steel trade surplus with Mexico. It would also provide a more targeted response to distortions generated by subsidized production in third countries.
4. Replacing intra-regional tariffs using emerging technologies
Rather than relying on intra-regional tariffs, North America could strengthen enforcement through shared technological tools. Blockchain-based traceability systems can create auditable records of origin across supply chains, from raw material production to final assembly. Similarly, AI-driven trade intelligence, jointly operated by US and Mexican authorities, can integrate customs data, shipping information, and financial flows to identify circumvention patterns in real time and detect the movement of dual-use materials with potential national security implications.
Together, these approaches offer a pathway to strengthen enforcement while preserving the integrity of regional trade.
5. Strengthening industry-government information sharing
Effective policymaking is constrained by gaps in data on supply chains and investment patterns. Governments and industry should jointly commission a comprehensive mapping of direct and indirect Chinese investment in the auto-parts sector across North America.
This effort should include a verified inventory of Chinese-owned facilities operating in the United States and an assessment of their presence in Mexico, with regular updates to reflect changes in the investment landscape.
Policy decisions on tariffs and regional content requirements should be informed by reliable data to avoid unintended disruptions. In parallel, industry associations should establish structured mechanisms to share information with governments on trade flows, input sourcing, substitution capacity, and supply chain vulnerabilities, while respecting confidentiality and competition rules.
6. Addressing regulatory constraints in Mexico
Regulatory uncertainty and rising logistics costs in Mexico are increasingly affecting manufacturing competitiveness. As labor cost advantages diminish, regulatory efficiency becomes a key driver of productivity.
The United States has identified fifty-four nontariff barriers across sectors including energy, logistics, telecommunications, and customs practices, though these have not been fully detailed publicly. Greater transparency, including publication of these measures and structured consultation with industry, would support more predictable regulatory processes.
Additional barriers—including energy restrictions, duplicative certification requirements, and inconsistencies in customs valuation—compound the burden on manufacturers already affected by tariffs. These challenges should be prioritized in the USMCA review process.
Operational inefficiencies such as delays in permits, bottlenecks in freight processing, and uncertainty surrounding Mexico’s Manufacturing, Maquila, and Export Services Industry (IMMEX) program further increase costs. Addressing these issues is critical to maintaining Mexico’s role as a competitive production platform within North America.
Conclusion
As economic and trade authorities across Mexico and the United States engage in the July 2026 USMCA review, adapting to evolving geopolitical realities without reversing binational economic integration should be a priority.
Clarifying and simplifying rules of origin, promoting phased auto-part substitution, increasing the use of AI and blockchain technologies and re-assessing the use of broad sector-specific tariffs as a trade instrument could boost North American competitiveness and level the global trade playing field.
about the task force
Co-chaired by US Senator Roy Blunt and Altagracia Gomez Sierra—head of Mexico’s Regional Economic Development Advisory Council—the US–Mexico Binational Task Force on Economic Security and Competitiveness focuses on strengthening supply chains and promoting long-term economic resilience across North America.
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The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.
Image: Employees work on a car at the assembly line of the Zacua auto plant, Mexico's first electric car brand built mainly by women, in Puebla, Mexico March 11, 2022. Picture taken March 11, 2022. REUTERS/Imelda Medina
