Trump Administration Decides Not To Extend USMCA for Another Term: What Does That Mean Exactly?

Today, as part of the first joint review of the USMCA, the three governments held a virtual meeting. Here's the official statement from U.S. Trade Rep. Jamieson Greer after the meeting:

The Agreement between the United States of America, the United Mexican States, and Canada (USMCA or “Agreement”) requires the USMCA Free Trade Commission, composed of government representatives of each Party, to conduct a joint review of the Agreement on July 1, 2026. In accordance with the Agreement, the United States, Mexico, and Canada met virtually today to discuss the operation of the USMCA. The United States did not agree to renew the USMCA in its current form. As a result, the USMCA is not renewed. The United States will continue to engage with Mexico and Canada to address the Agreement’s shortcomings and our trade deficits with these countries. However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination. As previously announced, the United States will meet with Mexico the week of July 20 for a third round of bilateral negotiations related to the USMCA joint review.

What does this mean exactly? Let's look at the legal context.

Recall that USMCA Article 34.7 provides in relevant part:

1. This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term, in accordance with the procedures set forth in paragraphs 2 through 6.

...

3. As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and consider extension of this Agreement term no later than at the end of the next six-year period.

4. If, as part of a six-year review, a Party does not confirm its wish to extend the term of this Agreement for another 16-year period, the Commission shall meet to conduct a joint review every year for the remainder of the term of this Agreement. If one or more Parties did not confirm their desire to extend this Agreement for another 16-year term at the conclusion of a given joint review, at any time between the conclusion of that review and expiry of this Agreement, the Parties may automatically extend the term of this Agreement for another 16 years by confirming in writing, through their respective head of government, their wish to extend this Agreement for another 16-year period.

Practically speaking, what these provisions say is that as part of the joint review of the USMCA at its 6-year mark (which is today), each government is to "confirm" whether it "wishes"/"desires" to extend the agreement for another 16-year term. If all three governments confirm that they do want to extend, the agreement gets the new 16-year term. If not all governments confirm this, however, the term is not extended at the 6-year mark, but the governments can keep talking and decide "at any time" that they do wish/desire to extend; and until there is such a decision, they will conduct annual reviews (along the lines of the review happening right now), and a decision to extend can be made at those reviews as well. If all three have not confirmed their wish/desire to extend by the end of the 16-year period (i.e. 2036), then the agreement terminates.

The language of Article 34.7 is a bit confusing because a failure to "confirm a wish/desire to extend" at the 6-year mark kind of sounds like a decision to end the agreement, but it actually has a very different impact in practice. As noted, if a party fails to confirm this wish/desire at a given moment, it can still do the confirming later on. Thus, a failure to confirm extension as part of the 6-year review is just a temporary state of affairs that could be reconsidered down the road. (For media folks trying to explain what is happening, I sense that this situation has presented some difficulties in getting a clear explanation out there, and I confess that I'm not sure how clearly I explained things above!)

Given the Trump administration's decision today, where do things stand right now on the future of the USMCA? "Totally up in the air" is probably a good characterization.

What are the chances of this administration deciding to extend on the basis of a negotiated deal at some point in the near future (or before Trump leaves office anyway)? Given that the agreement will continue through 2036 regardless of the administration's decision on the extension, I have doubts that it will rethink its position here and express a wish/desire to extend. There may not be enough near-term economic downside for them to feel compelled to agree to an extension.

An important consideration is likely to be how much Canada and Mexico are willing to concede on trade and non-trade issues. If Canada and Mexico give enough, then perhaps the administration would change its mind and agree to an extension. But I'm skeptical this will happen. Thus, the decision on extension of the USMCA could carry over to a future U.S. administration. (How would a different U.S. administration see this issue? As much as I like to speculate, that one's a little too far off, so let's come back to it later!)