I don't know if the USMCA is going to survive all the U.S. tariffs on Canada and Mexico, along with the Canadian and Mexican retaliation. Will the agreement make it to the USMCA review next year? We'll see.
If we do make it though, I see a big problem in the form of the national security exception. Canada and Mexico were among the first targets in President Trump’s use of the International Economic Emergency Powers Act, a law that gives broad discretion to the president to take actions to address national emergencies. And they are major targets of Section 232 national security investigations as well. Beyond the well-known steel and aluminum Section 232 tariffs, the Trump administration has initiated a Section 232 investigation of timber and lumber imports, which has been the source of a decades-long U.S.-Canada trade battle. It has also initiated one on copper. And Section 232 action on automobile imports is likely coming too (there was an investigation during the first Trump administration, and the current Trump administration could act on it), which would have a significant impact on both Canada and Mexico.
And while Canada and Mexico can file USMCA complaints against Section 232 measures (which the U.S. will defend under the security exception), and they may very well win those complaints (although the USMCA security exception is even broader that the WTO security exceptions), a panel ruling can give them a legal way to retaliate but won't save them from the tariffs.
As a result, Canada and Mexico have little recourse under the USMCA when the U.S. uses Section 232 against them. In each instance, they will be forced to the negotiating table and feel pressure to make new concessions. In these circumstances, USMCA is of much less value to them, and that's bad for the whole North American trading relationship.
Canada and Mexico were aware of the problem of a broad national security exception during the NAFTA renegotiation, and there were some USMCA side letters on this: MX-US Side Letter on 232 Dispute Settlement; MX-US Side Letter on 232 Process; MX-US Side Letter on 232; CA-US Side Letter on 232 Process; Side Letter Text on 232 CA-US Response. But clearly, given what we have seen recently with Section 232 actions, none of this appears to be sufficient. Are there alternatives that would be more effective? I will set out briefly a possibility I came up with.
Canada and Mexico could ask for a presumption that in any Section 232 investigation, Canadian and Mexican imports would be exempt. The presumption would be rebuttable, so if specific evidence were presented in relation to Canadian and Mexican imports -- beyond the evidence provided for other affected governments -- restrictions on Canadian and Mexican imports could still be imposed. But the default finding would be that Canada and Mexico would be exempt from any Section 232 trade restrictions.
There is no doubt the Trump administration would strongly resist a demand such as this one. However, without something like this in place, Canada and Mexico will likely question the value of the USMCA. If all three parties want to maintain the USMCA -- and it is clear that many politicians and interest groups in the U.S. do, even if Trump and some of his trade officials have doubts about North American free trade -- a compromise along these lines may be necessary as part of the 2026 USMCA review. Without some action to address the problems created by the invocations of national security, the USMCA risks becoming a trade agreement in name only, with the breaches and threats of breaches overwhelming the commitments, and the private sector no longer relying on it as a stabilizing force that supports investment and trade.
(To be clear, everything that has been happening is far from the outcome I would like to see for North American trade relations. This is just one of those posts where I abandon my idealism and try to come up with a compromise that all the parties can live with.)
