Trade is a weapon
The United States-Mexico-Canada Agreement (USMCA) is no longer a settled treaty. It is a hostage. This morning, the Mexican Peso (MXN) hovered near 17.18 against the dollar, reflecting a market paralyzed by the approaching July 1st deadline. The honeymoon ended long ago. Now, the three nations face a mandatory joint review that could trigger a ten-year countdown to the agreement’s termination. This is the first time a major U.S. free trade agreement has included a sunset clause. The stakes are not just about tariffs. They are about the survival of the North American supply chain.
The Article 34.7 Trap
Technically, the USMCA remains in force for 16 years. However, Article 34.7 mandates a joint review every six years. If any party refuses to renew the agreement in writing this year, the pact enters a state of annual review. This creates a decade of regulatory purgatory. The Trump administration has signaled it will use this leverage to extract concessions. Washington is no longer satisfied with the 2020 terms. They want more. Specifically, they want to close the back door that allows Chinese components to enter the U.S. market duty-free through Mexican factories.
The China Bridge Problem
Mexico is the top trading partner for the United States, with total trade exceeding $930 billion in 2024 per the Office of the United States Trade Representative. But this volume hides a technical dispute. Rules of origin for the automotive sector currently require 75 percent regional content. U.S. negotiators argue that Chinese firms are circumventing these rules by setting up assembly plants in Mexico. This has turned Mexico into a bridge rather than a buffer. Morgan Stanley’s Head of Public Policy Research, Ariana Salvatore, noted in a recent podcast that the 2026 review is the ultimate litmus test for the nearshoring narrative. If the U.S. tightens these rules further, the cost of manufacturing in North America will spike. The efficiency of the bloc is at odds with the national security of its largest member.
The Canadian Cold War
Friction is not limited to the southern border. Relations with Ottawa have soured over the Gordie Howe International Bridge. As reported by Reuters, the U.S. administration has threatened to block the opening of the $4.7 billion crossing unless Canada offers fair compensation for what the White House calls unfair trade practices. The dispute extends to dairy quotas and digital services taxes. Canadian Prime Minister Mark Carney, who took office last year, has attempted to pivot toward China to diversify trade. This move has only intensified the pressure from Washington. The U.S. view is clear: you are either with the bloc or against it.
Market Volatility and Currency Sensitivity
Currency markets are the first to feel the heat. The Mexican Peso has shown remarkable resilience but remains sensitive to every social media post from the White House. Traders are pricing in a range-bound environment for the USD/MXN pair, but the volatility is increasing as the July review nears. The following chart illustrates the exchange rate movements over the first eleven days of February, showing a steady appreciation of the peso despite the rhetorical headwinds.
Comparison of Trade Metrics
The following table outlines the current trade dynamics between the United States and its USMCA partners based on the latest 2024 and 2025 data points.
| Metric | Mexico (Current) | Canada (Current) |
|---|---|---|
| Total Goods Trade (2024) | $839.6 Billion | $774.2 Billion |
| Trade Balance | $171.5 Billion Deficit | $68.1 Billion Deficit |
| Top Export to U.S. | Automobiles | Energy/Crude Oil |
| USMCA Compliance Rate | 84% | 85% |
The data suggests that while integration is deep, it is also lopsided. The U.S. trade deficit with Mexico grew by nearly 15 percent in the last reported year. This is the statistic that keeps lawmakers in Washington awake. They see the deficit as a direct result of weak enforcement of labor and environmental standards. Mexico has countered by increasing its own tariffs on Asian imports, hoping to prove its loyalty to the North American bloc. But in a world of strategic competition, loyalty is measured in concessions, not promises.
The next critical data point arrives on March 12th. This is the deadline for the implementation of universal steel and aluminum tariffs. If Mexico and Canada do not secure a permanent exemption before this date, the USMCA review in July will begin in a state of open trade war. Watch the USTR’s upcoming report to Congress for the final confirmation of the U.S. negotiating stance.
