Auto industry preps for unprecedented USMCA review as crucial elections loom

Political uncertainty in the U.S. and Canada is creating concern for the auto industry as the United States-Mexico-Canada Agreement approaches its scheduled review in 2026.

Under the terms of the trade pact, which dictates how vehicles and parts can move across borders without tariffs, the three countries must confirm in writing by July 1, 2026, whether they want the deal to continue.

The nations' trade representatives will meet before then to review the terms and consider recommendations for changes. Their choices: Accept or reject modifications and extend the agreement for 16 years or launch annual reviews every year through 2036.

The process could result in significant changes to the agreement or cast its long-term future in doubt.

"This is unprecedented in terms of process," said Mark Tallo, an international trade lawyer at New York firm Sandler, Travis & Rosenberg. "To my knowledge, there is no other trade agreement the U.S. is involved in that has such a mechanism."

Who wins upcoming elections in the U.S. and Canada will influence the future of automotive manufacturing in North America at a critical moment for the industry, as it electrifies and looks to boost its competitiveness with China. "The review is going to take place in a very competitive environment, globally and geopolitically," said John Bozzella, CEO of the Alliance for Automotive Innovation, the U.S. auto industry's lobbying group.

Vice President Kamala Harris and former President Donald Trump, locked in a tight presidential race with the Nov. 5 election approaching, would likely take different approaches to the review, though both have signaled hawkish views on trade with China.

"I think a Harris administration might focus more on labor, whereas a Trump administration might focus more on domestic content," Tallo said.

Trump, in particular, might use the review process to try for major changes, considering his administration pushed to both replace the predecessor North American Free Trade Agreement and for the USMCA to include the midterm review.

Trump could see the reevaluation as a bargaining chip to block Mexico from allowing Chinese automakers to open assembly plants there, AutoForecast Solutions CEO Joe McCabe said.

"He can't, with the stroke of a pen, knock them out, but he can be difficult about it," he said.

Canada is headed for an election by Oct. 20, 2025, raising the prospect of a new government in Ottawa by the time the review process begins.

Polls show Prime Minister Justin Trudeau with high disapproval ratings and his Liberal Party trailing the Conservative Party.

The industry will need to remain flexible as the politics are sorted out and as new issues arise by 2026, said Ana Meuwissen, senior vice president of government affairs at MEMA, which represents more than 1,000 companies in the automotive supply chain.

Ensuring the agreement remains in place is the top priority for the auto industry as the U.S., Canada and Mexico prepare for the review, Meuwissen said.

The three countries' auto sectors are highly integrated. Casting doubt about the USMCA's future could make it more difficult for the region to compete globally and attract large investments, which are planned years in advance.

"The preservation and continuity of it is so important to the industry, and we want to have this opportunity to have a good dialogue about how things have been working the last few years," Meuwissen said.

The review will likely focus on issues that have arisen after the pact went into effect in July 2020.

Since its adoption, the industry has struggled with the COVID-19 pandemic and subsequent supply chain and labor shortages, prompting efforts to regionalize manufacturing footprints.

That, in turn, spurred North American automotive manufacturing investment, particularly in Mexico, where suppliers have flagged a tightening labor market as a concern as more auto factories come online.

The UAW and other labor unions are likely to lobby for more protections against auto companies and others using Mexico as a low-cost North American jurisdiction at the expense of U.S. workers. It's a dynamic that could become particularly important should Harris, the UAW-endorsed candidate, win, said Michael Robinet, executive director of automotive advisory services at S&P Global Mobility.

"When it comes to Mexico, labor's going to want to have their views heard," Robinet said Sept. 24 during a panel discussion at the Automotive News Congress.

Tweaks to the deal's regional value content rules could also be on the table.

Under the pact, 75 percent of a vehicle's content must originate from the region in order to move across the border tariff-free, up from 62.5 percent under the previous North American Free Trade Agreement. The USMCA also introduced a labor value content rule requiring that at least 40 percent of auto content being shipped cross-border must be made by workers earning at least $16 per hour.

The transition to EVs and China's growth in the global auto industry will play larger roles in the discussions than they did during negotiations from 2017 to 2019.

"There's unanimity in the view that China is a strategic threat," Bozzella said.

The U.S. and Canada this year implemented tariffs aimed at preventing Chinese automakers from importing electric vehicles. The respective governments raised concerns about automakers such as BYD eyeing Mexico as an entry into their markets, fearing domestic companies might not be able to compete because of how China's industrial policy provides advantages to its manufacturers.

Each of the three nations under the pact has an interest in ensuring fair competition in the marketplace, White House economic adviser Lael Brainard said.

"You cannot compete fairly with a country that has engaged in this much forced technology transfer, IP theft, and regulations and barriers that are intended to unfairly favor underpriced cars in China," she said Sept. 23 at the Detroit Economic Club.

The U.S. is already in conversations with officials in Mexico ahead of the review, she said.

"They share our concerns about China using Mexico as a platform to try to ship into the United States at artificially low tariffs," Brainard said.

The review deadline provides countries with leverage to force alterations to the agreement's provisions.

"The whole point is to maintain a certain level of discomfort, which may involve a certain level of uncertainty," U.S. Trade Representative Katherine Tai said at a Brookings Institution event in March. "That discomfort is actually a feature, not a bug."

Auto executives and analysts say only one thing is certain about this review. The industry wants the USMCA to survive the process and become better for having gone through it.

"It's very much a dynamic creature in and of itself," Meuwissen said. "We hope the review will be a positive way of figuring out how we move forward and strengthen the good work that's already been done."