With all the tariffs imposed by the Trump administration on Canada and Mexico (under IEEPA already, under Section 232 soon, maybe under Section 301, and various other possibilities as well), and with the Canadian and Mexican tariff retaliation, how much is left of the USMCA? In economic terms, the creation of a virtually tariff-free trading area was the main benefit of NAFTA/USMCA. Without tariff-free North American trading, the agreement's impact is considerably reduced.
Having said that, until the parties formally terminate the agreement, it is still technically in effect, even if they are "observing it in the breach." And while tariffs may be spiraling, there are a number of ways the three countries may still make use of the agreement, including the following:
-- The Chapter 10 binational panel system
-- ISDS complaints (whose scope was limited through the USMCA, but certain claims are still possible)
-- Chapter 31 state-state disputes
-- The rapid response labor mechanism
With binational panels, I'm not sure how important these are given that domestic courts are an option for AD/CVD appeals, but some lawyers like them, so if they are available they will likely be used. They are part of U.S. law (and Canadian and Mexican law as well), so this process could keep functioning even if governments are disregarding the tariff commitments. If a government really wanted to disrupt the binational panel process, it could probably find a way, but it's unclear if anyone will think it's worth going that far.
For ISDS, this is where lawyers make some really good money, so there will likely be cases until the last possible day the remedy is available in the event of a formal termination of the agreement.
On Chapter 31 disputes, because the normal enforcement tool for a successful Chapter 31 complaint is tariffs, and as noted tariffs are already spiraling, I'm not sure how useful the three governments will consider Chapter 31 complaints to be. On the other hand, some complaints are brought to uphold a principle even if they are not likely to have an impact on policy, so we may still see a few of these cases.
Finally, the RRM is a tricky one. It has some strong supporters in the U.S. who want the U.S. government to use it against companies in Mexico. But this is a bilateral tool that relies on cooperation from Mexico. Will Mexico even engage with these issues in circumstances where it is subject to the Trump administration's tariffs? It may be reluctant to do so. If Mexico does not engage, the U.S. could then use that non-engagement to take additional action against companies in Mexico, including starting up a panel process if needed. If the end result of that process is more tariffs, then I'm not sure Mexican companies or the government will feel much pressure to comply, although there are other remedies that could be used as well that might be more convincing (we haven't gotten to that stage in an actual RRM proceeding yet). (For those who were wondering what the Trump administration would do with the ongoing RRM proceedings, also worth noting here is that last week there were updates to the proceeding timetables in the Pirelli and Camino Rojo panels, indicating that the cases will be pursued).
What do all of these issues have in common? They are lawyer-heavy aspects of the agreement! Trade wars may be bad for the economy, but lawyers tend to make out OK during these periods.
As we limp towards the 2026 USMCA review, and stagger through all the tariffs, it will be interesting to see whether and how the rest of the USMCA holds up. It is possible that the parts of the agreement mentioned above could function as a "zombie USMCA" that keeps going even if the core of it has been killed.
