Tec de Monterrey specialists explain what has changed, what’s next, and why this treaty remains crucial for Mexico
What does the announcement that the United States has no intention of renewing the United States-Mexico-Canada Agreement (USMCA) mean? What’s next for Mexico?
Tecnológico de Monterrey experts interviewed by CONECTA explain the context, possible scenarios, and why this review is key to the region’s future.
1. The agreement that changed North America’s trade relationship
2. The treaty is still in effect: this is what the U.S. actually said
3. Why does the United States want an annual USMCA review?
4. What would Mexico lose without the USMCA?
5. Competing in a more uncertain environment
6. Negotiations are just beginning
7. More markets, less dependence
1. The agreement that changed North America’s trade relationship
The USMCA is the trade agreement that governs the exchange of goods and services between the three North American countries.
According to EGADE Business School professor Jorge Enrique Velarde, the agreement has transformed the economic relationship between Mexico and the United States since it began as the North American Free Trade Agreement (NAFTA) in 1994.
“It was a turning point for the Mexican economy. It helped attract investment, bolster businesses, and make Mexico a key player in North American supply chains,” Velarde explained.
The specialist noted that the treaty has spurred investment, business growth, and the integration of strategic sectors such as the automotive, manufacturing, electronics, and auto parts industries for over three decades.
The treaty makes it possible to:
- Export with few trade tariffs; reduce the costs of doing business
- Attract foreign investment; create jobs
- Integrate supply chains; enhance competitiveness in the region
- Operate in an environment of legal certainty; facilitate long-term investment
Furthermore, Osmar Zavaleta, a professor in the Department of Finance and Economics at EGADE Business School, noted that the USMCA came into effect on July 1, 2020, for a term of sixteen years with a scheduled six-year review.
2. The treaty is still in effect: this is what the U.S. actually said
One of the main misunderstandings arose from headlines claiming that the United States had “canceled” or “terminated” the USMCA; however, both professors agree that this did not happen.
What happened was that the United States decided not to automatically extend the agreement for another sixteen years as originally provided for.
This means that the treaty will remain in effect, but it will now enter an annual-review phase through 2036 with the possibility of being renewed earlier if the three countries reach a consensus.
“It doesn’t mean the treaty will disappear tomorrow. What has changed is that while the agreement continues to operate normally, we will now have annual reviews over the next ten years,” Zavaleta explained.
Velarde underscored that neither should a review be confused with a renegotiation.
“A review does not imply a renegotiation of the entire treaty. They are different processes. Renegotiations involve changing the rules; reviews allow us to assess how the agreement is working,” he clarified.
3. Why does the United States want an annual USMCA review?
Experts say the announcement is primarily a response to the economic strategy promoted by President Donald Trump.
The goal is to boost production within the United States, bring back manufacturing jobs, and reduce the trade deficit.
“The United States is trying to attract companies back to its territory through tax incentives and trade rules that favor domestic production,” Velarde said.
Zavaleta added that the United States also intends to increase the regional content of certain products, particularly in sectors like the automotive industry.
One of the proposals is to increase the minimum percentage of components manufactured in North America and to raise the specific share of U.S. companies within those supply chains.
4. What would Mexico lose without the USMCA?
Although both scholars consider a complete breakdown of the agreement unlikely, they agree that it would have significant consequences.
Velarde explained that Mexico would lose its international competitiveness, investment would decline, and economic growth would slow down.
“Without investment, there is no job creation. This ultimately affects consumption and growth across the entire economy,” he said.
Moreover, sectors that are highly integrated with the United States (like the automotive, manufacturing, and auto parts industries) would have to reorganize their supply chains.
The professors agree that the most sensitive sectors would be:
- Automotive
- Auto Parts
- Electronics
- Manufacturing
- Agribusiness
- Logistics
Zavaleta added that the uncertainty is already starting to impact certain indicators.
“Foreign direct investment is made over the medium and long term. When there is uncertainty about the rules of the game, many investments are simply put on hold,” he explained.
5. Competing in a more uncertain environment
Far from slowing it down, both experts believe that companies must prepare for a more dynamic business environment.
Velarde recommended working on five fronts:
- Improve competitiveness;
- Invest in technology and artificial intelligence to increase productivity;
- Diversify markets and suppliers to reduce dependence;
- Look for new suppliers to reduce risks;
- Closely monitor negotiations and anticipate regulatory changes.
“Companies need to get used to operating in this new environment and seek competitiveness by other means, not just exchange rates or tariff benefits,” he said.
He also suggested stimulating the development of domestic suppliers and exploring opportunities in markets other than the United States.
For his part, Zavaleta believes that this scenario could also represent an opportunity for small and medium-sized Mexican businesses.
“If regional content requirements are increased under the treaty, Mexico will have the opportunity to develop more local suppliers and integrate them into North American value chains,” he noted.
6. Negotiations are just beginning
Talks between the three countries will continue in the coming months.
The professors expect issues such as the automotive industry, rules of origin, tariffs, and regional content to take up a significant portion of the agenda.
Velarde believes that companies should closely monitor the progress of the negotiations without giving in to alarmism.
“The markets have already priced in much of this uncertainty. The key will be in seeing how the negotiations unfold during the second half of the year,” he explained.
Issues still to be negotiated:
- The automotive industry
- Rules of origin
- Regional content
- Steel and aluminum
- Energy
- Tariffs
- Manufacturing
- Nearshoring
Meanwhile, Zavaleta believes that Mexico must also enhance certain internal aspects.
“Beyond the USMCA, Mexico needs to continue working on issues such as the rule of law, legal certainty, security, and infrastructure development to maintain its competitiveness,” he said.
7. More markets, less dependence
Although the United States will continue to be Mexico’s main trading partner, both scholars agree that this situation also presents an opportunity to explore other markets.
Zavaleta noted that the recent modernization of the trade agreement between Mexico and the European Union opens up new opportunities for technology-related industries, advanced manufacturing, and high-value-added sectors.
However, he cautioned that replacing the U.S. market will not be easy.
“About 84% of Mexican exports currently go to the United States. Diversification is possible, but it will take time,” he concluded.
In fact, the new agreement between Mexico and the European Union is viewed by several experts as a strategic move to diversify Mexico’s foreign trade in the face of uncertainty in North America.
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