In renegotiating the USMCA, Mexico should neither rush nor stall
Just over a year ago, the Trump administration embarked on an unrelenting campaign to upend existing cooperative trade relationships. As part of this strategy, it imposed tariffs on trading partners across Europe, Africa, and Asia to secure more favorable deals. With the mandatory review of the United States–Mexico–Canada Agreement (USMCA) that began on March 16, however, the focus will now shift back to its immediate neighborhood—and to the most important bilateral US trading relationship.
By the numbers, Mexico and the United States are each other’s largest trading partners, and—in large part because of their geographic proximity—much of their trade consists of intermediate components that cross the border multiple times in complex manufacturing supply chains. It is precisely this deep integration, developed over more than three decades, that underpins North America’s industrial strength.
The mechanics of the agreement—and Mexico’s strategic options
The process to review the USMCA is straightforward. If the three parties to the agreement do not agree to renew it by July 1, they will simply be required to meet annually for the next ten years to resolve their differences. Should they fail to do so by 2036, the USMCA will automatically terminate.
But any of the three countries can also end their participation with six months’ notice. While the termination scenario is possible—and a February 11 Bloomberg article suggests that US President Donald Trump has contemplated such a move—it remains highly unlikely. After all, ending the agreement would damage key sectors like the US automotive industry and hurt Republican strongholds such as Texas, both major beneficiaries of trade integration with Mexico. It would also create growth and inflation headwinds at a fragile moment for the US economy and Trump’s political standing. Against this backdrop, Trump’s insinuations appear more like a negotiating tactic than a credible threat.
The Mexican government’s top priority will be to stabilize its economic relationship with Washington. This would be an important goal in the best of times, but it takes on greater weight given that Mexico faces weak growth—under 1 percent in 2025—and declining investment. As the Mexican government enters formal discussions with the United States on the future of the USMCA, it has three options: one ideal, one underwhelming but acceptable, and one unacceptable.
- The ideal outcome: Mexico develops ambitious asks, primarily related to protection from tariffs, avoids meaningful economic damage, and pushes for a quick agreement.
- The underwhelming but acceptable option: The Mexican government simply waits, keeping the current agreement in place, without ironclad certainty about its future or protection from the threat of tariffs or other forms of economic or political coercion. This is the most likely outcome.
- The “unacceptable” option: Mexico rushes to accept conditions that risk damage to its economy, particularly the manufacturing sector, in the hope of gaining investment certainty that may never materialize.
A negotiator’s guide to the USMCA review
The ideal outcome is feasible and would further joint goals on North American supply chain integration. Strong Mexican asks would include, first and foremost, protection from tariffs for USMCA-compliant products. This would include exceptions for Mexican products from tariffs that fall under Section 232 of the Trade Act—which have hit Mexico’s steel, aluminum, and automotive industries hard—as well as protection against Section 301 tariffs. The current agreement does not provide investment certainty because it does not limit the US president’s ability to use these additional tariff tools.
Securing such concessions alone would make for a compelling deal. But there are other measures Mexico could pursue that would benefit both countries. In the United States, there is a bipartisan consensus on the need to reduce defense and economic vulnerabilities arising from the concentration of semiconductor production in East Asia. In fact, the United States is attempting to bring advanced semiconductor manufacturing back home, particularly to the border states of Arizona and Texas. Mexico could play an expanded role in assembly, testing and packaging, as well as semiconductor design.
Both countries have already deepened cooperation in this strategic sector through a series of bilateral fora aimed at attracting investment and strengthening regional supply chains. Still, Mexico should press the United States to match its rhetoric on this issue with concrete measures to help allied economies participate in the semiconductor value chain. Since funding—both for supply chain development and workforce training—is already available through the International Technology Security and Innovation (ITSI) Fund under the CHIPS and Science Act, Mexico should not only seek access, but negotiate preferential treatment as a core partner in US semiconductor strategy.
A similar approach could guide Mexico’s strategy on critical minerals. Building on the recently announced US-Mexico Critical Minerals Action Plan, Mexico should push to secure preferential access to US incentives and financing, while embedding itself in shared North American rules on sourcing and traceability. The plan should be seen as an acknowledgement by the United States that it needs Mexico to meet its geopolitical supply chain goals. Rather than settling for coordination alone, Mexico should aim for deeper integration.
More generally, the most important goal of Mexico’s economic development plan (the Plan México) is to boost economic development by producing locally rather than importing—mainly from Asia—more of the high value-added content in manufacturing products. The US government would ideally welcome proposals to expand investment in Mexico in technology and other high-value-added sectors that complement, rather than compete with, US manufacturing. These measures would strengthen supply chain resilience in sensitive industries while helping Mexico to “move up the value chain.”
Why Mexico shouldn’t rush a deal
If the Mexican government cannot achieve these or other strong goals, it should not rush to make a deal that would do real damage to Mexico’s economy. In addition to firmly rejecting Section 232 and 301 tariffs on USMCA-compliant products, the administration should proceed cautiously in implementing tariffs against China.
Concerns over China’s industrial policy are well-founded, some targeted tariffs may be appropriate, and Plan México’s goal is precisely about lessening import dependence on manufacturing inputs. However, Mexico cannot ignore that roughly 20 percent of its imports—many of which are manufacturing inputs—come from China. Thus, introducing broad-based tariffs would simply boost inflation and erode export competitiveness. Moreover, due to most-favored-nation obligations, such tariffs would need to be extended to all non-preferential partners. Since these include key trading partners and sources of foreign direct investment like South Korea and Taiwan, it would amplify the economic costs.
For Mexico, the goal cannot simply be to secure any agreement at all costs. Nor should it settle for a bad agreement even if it provides preferable rates compared to key competitors. After all, the status quo—which is to wait—is likely to maintain those preferable rates.
Waiting carries risks, and it is not the optimal outcome for either country, but if Mexico considers the current volatility in US decision-making to be unique to the second Trump administration, it may still represent the more attractive option. With two and a half years until the next US presidential election, it is difficult to see beyond the status quo, but at some point in the near future counterparts across the world may decide that there is light at the end of the tunnel—and the relative appeal of accommodating costly demands from the Trump administration will likely decrease. Given that Trump’s tariffs are highly unpopular and that ideological divisions within his party are re-asserting themselves, it’s highly plausible (and perhaps likely) that a Republican successor would discontinue his trade policies. Assuming, for simplicity, a 50 percent chance of that scenario and a 50 percent chance of a Democratic victory in 2028, the odds of a more favorable operating environment for Mexico in 2029 rise to 75 percent.
A win-win deal is feasible, and Mexico should work toward that outcome. It should seek tariff protections, strengthen supply chain integration, and embed itself in North American semiconductor and critical mineral strategies. If such an outcome is not possible, waiting and keeping the current agreement in place is an acceptable outcome. Rushing into a bad deal to maintain the USMCA could do damage to the economy without targeting the principal sources of uncertainty that have hurt Mexico to date. The decision carries enormous consequences for the country’s development trajectory for years to come. If the government trades the long-term health of the economy for the prospect of trade certainty, it risks losing both.
Phil Lovegren is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative and is currently director for strategy and international regulatory affairsat Banca Mifel.
Ernesto Stein is distinguished university professor of public policy at the School of Government and Public Transformation at Tec de Monterrey, and director of the BBVA-Tec Center for Trade Policy and Global Value Chains for North America.
Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.
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