It has been five years since the United States-Mexico-Canada Agreement (USMCA) went into effect. Though set to run for 16 years, Article 34.7 of the trade pact calls for a joint review at the six-year mark, at which time the member countries will decide whether to extend the agreement for another 16 years, with reviews taking place every six years. If all three are not on board with the extension, an annual review process would kick in. As U.S., Canada and Mexico prepare for the review this summer, lawmakers and industry groups are weighing in with their suggestions on how the United States Trade Representative (USTR) should move forward. Public hearings on the matter begin December 3.
Whether or not the review clause was meant to open up the agreement to a full renegotiation, there’s a chance that’s how things could play out — particularly due to the timing. USMCA was ratified during the first Trump Administration. At the time, there was no reason to believe Donald Trump would be the sitting President when the review mechanism kicked in. But since that’s the case, it creates a unique situation, especially given his unpredictable take on trade this second time around.
“The President is really looking at his time in office right now as a chance to really fundamentally remake trade policy, and that includes the things that he did four years ago,” Stephen Lamar, President and CEO of the American Apparel & Footwear Association (AAFA), told HGI. “Since the review came along while he is now President, I think he’s not going to look at it as just a check the box review. I think he will look at it as, ‘Let’s look and see if it’s working in the same way that I feel the America trade-first policy needs it to work.’”
During the comment period this fall, trade groups across industries submitted statements to the USTR, most in support of building upon, rather than replacing, the current agreement. Though largely positive, the comments highlighted suggested changes that would benefit their individual members. The National Association of Manufacturers called USMCA the “most pro-U.S. manufacturing agreement in history,” which has driven competitiveness in the global market. The Automotive Policy Council echoed those sentiments, while the International Dairy Foods Association emphasized the importance of the trilateral nature of the agreement.
Similarly, 36 members the U.S. House of Representatives from the New Democrat Coalition stated in a letter, “we believe the 2026 review should aim to build on and refine the successes of USMCA without undermining its core framework.”
The AAFA, too, expressed a desire to preserve USMCA “in its current form.” The group pointed out that last year, 53 percent of U.S. textile exports went to Mexico and Canada, much of which was incorporated into finished garments that are imported back to the United States.
Despite pleas to maintain the basic framework of the free trade agreement, the possibility remains that the President could have other ideas. Nicole Bivens Collinson, Managing Principal, Operating Committee, and International Trade and Government Relations Practice Leader with Sandler, Travis & Rosenberg, said a bilateral agreement isn’t off the table.
Trump has floated the idea, and she said, it fits into what is known about his trade strategy. “The President finds it easier to work with one country, one on one, than having to negotiate with the two at the same time, and he feels he can extract more concessions on a bilateral basis versus a trilateral basis,” she said, adding he currently has differing sentiments toward the two nations. “Plus, right now, Sheinbaum is the golden child, and Carney is the ugly duckling.”
It still remains to be seen what Canada and Mexico could want out of the review. Bivens Collinson said Canada’s likely looking to “play defense,” mainly focusing on safeguarding USMCA qualifying goods from future tariffs. Meanwhile, she feels Mexico could be looking for language that would create urgency around its need to crack down on crime.
Avoiding further restrictions
Whether or not the U.S. attempts to scrap USMCA altogether, Bivens Collinson said the government is likely considering how it can restrict foreign investment in Canada and Mexico. To do so, she said, some on the Hill are in favor of a requiring an entity like the Committee on Foreign Investment in the United States (CFIUS) that reviews foreign direct investments for national security risks. In this case, the committee would be designed to curtail Chinese investment in the manufacturing sector of partner nations, she said.
“I do think it’s important that, particularly in the textile material area, we guard against a focus on the ethnicity of investors as a reason for excluding the goods produced in the country according to the rule from being eligible, which is where I think we’re heading,” she said. “I’m afraid that U.S. textile mills are going to be pushing the Administration to say, ‘If it’s Chinese investment, it doesn’t qualify.’”
A move like this would make qualifying goods that much more difficult, Bivens Collinson said. And while the existing rules are already challenging, the industry has found a way to make them work, she said. “When you start messing with them, that’s when you have problems, and there’s no reason to mess with them.”
But the U.S. Administration may not be able to resist making changes, specifically any that are designed to give the U.S. an advantage over certain countries in particular. One such potential change has already become a fixture in other Trump-era trade tactics.
The AAFA’s Lamar said he wouldn’t be surprised if transshipment, as defined by the Trump team, is put on the table.
As the U.S. government has defined it, transshipment would refer to goods from a foreign country that include an amount of inputs that exceeds a set threshold from a third country. Again, though not necessarily named explicitly, many take this concept to be another way the Administration is attempting to put limits on China.
Unlike rules of origin, which outline how to qualify for USMCA exemptions, transshipment would focus on what would disqualify goods from entering the country duty free. While related concepts, Lamar said the distinction is “super important.”
Ultimately, even if language like this is included in an update to USMCA, it’s hard to know how the transshipment restriction would be implemented in practice. “There’s a lot of distance between that very rough idea and what those very specific compliance mechanisms would look like,” he said.
If this concept of transshipment is layered on top of the existing rules of origin, there’s no question that it will only serve to complicate trade — and that’s exactly what the AAFA is hoping to avoid.
As trade agreements become more complex, the costs associated with complying rise, making them less economically advantageous, Lamar said. And worse, for a country that seems intent on weakening China’s grip on trade, the more complex USMCA compliance becomes, the more attractive the lower costs and efficiencies in Asia look. Lamar added “the hassle factor” alone could actually drive businesses to China.
“I’ve heard that comment many times in the last couple of months,” he said. “’Wouldn’t it be ironic if in an effort to squeeze China out of our supply chains, they end up pushing supply chains back to China?’”
Already, there’s some indication that the industry may find the current iteration of USMCA challenging. While 85 percent of U.S. apparel imports from Mexico come in under the agreement, only 4 percent of apparel by value entering the United States comes from Mexico. While Lamar calls that number significant, he said it used to be closer to 19 percent some 25 years ago. To him this illustrates there’s an opportunity for more trade between the countries if more in the industry could make the rules of origin work.
“If the rules of origin or if the requirements become so restrictive, then you end up scaring some people away. And I think that’s probably happened overall with USMCA trade,” he said. “[The volume of imports] used to be a lot more. It’s good and strong for what it is. And we want to at least preserve that, and create the opportunity for it to grow.”
Vetting the requested changes
Creating more opportunity is a driving factor behind some of the requests lawmakers and industry groups have presented in their comments to the USTR.
A group of 105 House Democrats on Capitol Hill issued a letter requesting a “significant renegotiation” of the agreement in order to preserve U.S. jobs. Calling the last five years “disappointing” — particularly on the job front — the group provided a list of potential improvements. Chief among them is strengthening USMCA’s rapid response mechanism (RRM), which fast-tracks investigations into workers’ rights and labor violations in Mexico. The letter stated that the current trade pact “has not resulted in the economywide gains for Mexican workers, representation by independent unions, and wage increases needed to eliminate incentives to offshore American jobs, and improvements must be made to the RRM to achieve this goal.”
Still, others find the RRM to be a useful framework for addressing issues, one that should be applied elsewhere. Bivens Collinson said some in Congress would like a similar mechanism to be put in place related to environmental concerns.
Meanwhile, she said others are focused on remedying the questionable practices of customs agents in Mexico. There have been reports of exorbitant penalties, reaching upwards of $40 million, for alleged USMCA violations, resulting in protracted legal actions that resulted in offers to settle for a $1 million payment. As a result, she said there’s been lobbying to strengthen the language around enforcement. “You have companies who would like some sort of standardization as to what the various customs agencies can or cannot do,” she said.
In its letter, the National Council of Textile Organizations (NCTO) has called on the Administration to preserve the IEEPA tariff exemptions, strengthen yarn-forward rule of origin and enforce greater punishment for customs offenders.
For its part, the AAFA weighed in with several areas that could benefit from amendments to USMCA, spanning duty drawbacks, labor and intellectual property rights protection. It also recommended expanding the goods covered under the pact by mirroring the cumulation provisions in CAFTA-DR. That FTA allows member countries to use inputs for Chapter 62 garments not only from each other but also from nations with which they have a mutual trade agreement. Currently, USMCA only recognizes inputs from the three member countries. With cumulation, qualifying garments made in Mexico could use raw materials from a country like El Salvador, which operates under separate free trade agreements with the U.S. and Mexico, and maintain their duty-free status.
Lamar noted this would be a logical move for the apparel industry. Already, he said, this industry considers CAFTA-DR and Mexico to be one region, and refers to it as such. “So, the fact that trade policy sometimes balkanizes the region makes it harder for companies to view the region as a sourcing platform that can really compete head-to-head with, say Asian powerhouse countries,” he said.
The AAFA also proposed the bolder step toward bolstering the country’s competitive advantage. In its note to the USTR, the trade group said it was time to expand USMCA to include countries with which the U.S. already has FTAs.
It’s an idea that has some traction in Washington already. The Americas Act, which was introduced by Senators Bill Cassidy and Michael Bennet and U.S. Representatives Elvira Salazar and Adriano Espaillar in 2024, called for a pathway for Latin American countries to join USMCA, which Cassidy called “the gold standard for trade agreements.”
“One of the things that happens there that this Administration appreciates is that as you do that, you create a lot more economic support and a lot more predictability for those workers, those factories, those communities that depend on regional trade partnerships,” Lamar said.
It would also go a long way toward prioritizing this region over Asia.
“Getting other partners on board would create what I feel is the counterbalance to China or the RCEP [Regional Comprehensive Economic Partnership]. If you look at those different large regional agreements, USMCA is not holding up. These other agreements are larger,” Bivens Collinson said, adding one country in particular would make all the difference. “If we got one other partner in there, Brazil, it would be the largest trading block in the world.”
The hearings next week will be the first opportunity the industry will have to get glean insights into what the Trump government may have in mind leading into the trilateral meetings over the summer.
