United States–Mexico–Canada Agreement
The Agreement between the United States of America, the United Mexican States, and Canada is a free trade agreement among the United States, Mexico, and Canada, in effect from. It replaced the North American Free Trade Agreement implemented in 1994. Further, it is sometimes characterized as "NAFTA 2.0", or "New NAFTA", since it largely maintains or updates the provisions of its predecessor. The region including Canada, Mexico, and the United States is one of the world's largest free trade zones, with a population of more than 510 million people and an economy of $30.997 trillion in nominal GDP – nearly 30 percent of the global economy, and the largest of any trade bloc in the world.
All sides came to a formal agreement on, and U.S. president Donald Trump proposed USMCA during the G20 Summit the following month, where he, Mexican president Enrique Peña Nieto, and Canadian prime minister Justin Trudeau signed it. A revised version reflecting additional consultations was signed on December 10, 2019. It was ratified by all three countries, with Canada being the last to ratify on March 13, 2020. Following notification by all three governments that the provisions were ready for domestic implementation, the agreement came into effect on.
USMCA is primarily a modernization of NAFTA, namely concerning intellectual property and digital trade, and borrows language from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, of which Canada and Mexico are signatories. Key changes from its predecessor include increased environmental and working regulations; greater incentives for automobile production in the U.S. ; more access to Canada's dairy market; and an increased duty-free limit for Canadians who buy U.S. goods online. The USMCA contains a provision for review and adjustment in 2026.
The 2025 United States trade war with Canada and Mexico began on February 1, 2025, when at the beginning of his second non-consecutive term, President Trump cited an "extraordinary threat posed by illegal aliens and drugs" and imposed an additional 25% tariff on imports from Canada and Mexico. One day before they were set to take effect, the tariffs were paused for 30 days, after Canada and Mexico agreed to increase national security measures at their respective borders with the US, and to allow for negotiations on economic agreements. Canada and Mexico accused the United States of violating the USMCA when 25% tariffs went into effect on March 4, 2025. On March 6, 2025, two days after the tariffs took effect, Trump announced that all USMCA compliant products would be exempt from the tariffs until April 2, 2025.
Background and nomenclature
The United States–Mexico–Canada Agreement is based substantially on the North American Free Trade Agreement, which came into effect on January 1, 1994. The present agreement was the result of more than a year of negotiations including possible tariffs by the United States against Canada in addition to the possibility of separate bilateral deals instead.During the 2016 U.S. presidential election, Donald Trump's campaign included the promise to renegotiate NAFTA or cancel it if renegotiations were to fail. Upon election, Trump proceeded to make a number of changes affecting trade relations with other countries withdrawing from the Paris Agreement, ceasing to be part of negotiations for the Trans-Pacific Partnership, and significantly increasing tariffs with China reinforcing that he was serious about seeking changes to NAFTA, while drawing wide criticism as well. One journal article noted that much of the debate surrounding the virtues and faults of the USMCA is similar to that surrounding all free trade agreements ; for instance, the nature of FTAs as public goods, potential infringements of national sovereignty, and the role of business, labor, environmental, and consumer interests in shaping the language of trade deals.
The agreement is referred to differently by each signatory—in the United States, it is called the United States–Mexico–Canada Agreement ; in Canada, it is officially known as the Canada–United States–Mexico Agreement in English and the Accord Canada–États-Unis–Mexique in French; and in Mexico, it is called Tratado entre México, Estados Unidos y Canadá. The agreement is sometimes referred to as "New NAFTA" about the previous trilateral agreement it is meant to supersede, the North American Free Trade Agreement.
Country comparison
† Including Guam, Puerto Rico, and the U.S. Virgin Islands.‡ Including Puerto Rico.
Negotiations
The formal process to renegotiate NAFTA began on May 18, 2017, when U.S. Trade Representative Robert Lighthizer notified Congress of the U.S. intent to start talks within 90 days. Under Trade Promotion Authority statutes, the USTR released its key negotiating objectives on July 7, 2017. Negotiations officially commenced on August 16, 2017, with eight formal rounds of talks held until April 8, 2018. By May 2, 2018, no resolution had been reached. Lighthizer warned that talks would pause until 2019 if no deal were finalized by the end of May, citing concerns over Mexico’s incoming president, Andrés Manuel López Obrador, who opposed parts of the negotiated terms.Separately, U.S. House Speaker Paul Ryan set a May 17, 2018, deadline for Congressional action, but this was ignored. A U.S.-Mexico deal was finally reached on August 27, 2018, though Canada still had not agreed. With Mexico’s outgoing president, Enrique Peña Nieto, leaving office on December 1, 2018, and a mandatory 60-day review period required, the deadline to finalize the text was September 30. Negotiators worked intensely and completed the draft just before midnight on September 30, 2018. The USMCA text was published as finalized on October 1, 2018, with Lighthizer crediting Jared Kushner for salvaging the deal multiple times.
The agreement was signed by all three countries’ leaders on November 30, 2018, during the G20 summit in Buenos Aires. The English, Spanish, and French versions were declared equally authentic. Ratification required the passage of enabling legislation in each country. U.S. Ambassador to Canada Kelly Craft played a critical role in bridging U.S.-Canada differences, boosting her standing within the Trump administration. Behind the scenes, Blackstone CEO Stephen Schwarzman—retained by Trump—reportedly urged Canadian Prime Minister Justin Trudeau to compromise on dairy market protections during a January 2017 meeting with Canada’s Liberal Cabinet at a Calgary retreat, where civil servants were absent. Schwarzman claimed Trudeau feared a recession ahead of the 2019 Canadian election.
On December 9, 2019, Fox News reported a breakthrough: negotiators agreed to enforce a $16/hour minimum wage for Mexican auto workers via a neutral third party. Mexico, which imports all its aluminum, opposed U.S. steel/aluminum content rules for vehicles but conceded to finalize ratification by year’s end.
Provisions
Provisions of the agreement cover a wide range, including agricultural produce, homelessness, manufactured products, labor conditions, and digital trade, among others. Some of the more prominent aspects of the agreement include giving U.S. dairy farmers greater access to the Canadian market, guidelines to have a higher proportion of automobiles manufactured among the three nations rather than imported from elsewhere, and retention of the dispute resolution system similar to that included in NAFTA.Dairy
The dairy provisions give the U.S. tariff-free access to 3.6%, up from 3.25% under the never-ratified Trans-Pacific Partnership, of the $15.2 billion Canadian dairy market. Canada agreed to eliminate Class 7 pricing provisions on certain dairy products, while Canada's domestic supply management system remains in place.Automobiles
Automobile rules of origin requirements mandate that a certain portion of an automobile's value must come from within the governed region. In NAFTA, the required portion was 62.5 percent. The USMCA increases this requirement to 75 percent of the automobile's value. The initial proposal from the Trump administration was to increase this to 85 percent and add a stipulation that 50 percent of the automotive content be made by U.S. carmakers, but in the end, the deal's text did not include this version of the provision. There is concern that the increased domestic sourcing requirements, aimed at promoting U.S. employment, will cause higher input costs and disruptions to supply chains deriving outside of certain developing or once more industrious zones, for example the "Rust" Belt.''De minimis''
To facilitate cross-border trade, Mexico and Canada agreed to raise their de minimis exemption thresholds for the application of taxes and customs duties.For goods transported to Canada by courier from the United States or Mexico, Canada increased the threshold from C$20 to C$40 for taxes, and to C$150 for customs duties.
Some goods do not have an exemption, such as alcohol and tobacco.
Mexico maintained its de minimis threshold at US$50 for taxes, and it agreed to provide duty-free shipments up to the equivalent of US$117.
Labor
USMCA Annex 23-A requires Mexico to pass legislation that improves the collective bargaining capabilities of labor unions. The specific standards Mexico is required to comply with are detailed in the International Labour Organization's Convention 98 on freedom of association and collective bargaining. The administration of Mexico's president, Andrés Manuel López Obrador, introduced legislation in late 2018 that pursues compliance with these international standards.Other labor-related measures include a minimum wage requirement in the automotive industry. Specifically, 40 to 45 percent of the automobiles manufactured in North America must be made in a factory that pays a minimum of US$16 per hour. This measure will be phased in during the first five years after USMCA ratification.