Mexico - February 2026

North American competitiveness and overall economic prosperity hang in the balance as formal discussions for the upcoming review of the US-Mexico-Canada Agreement (USMCA) were kicked off by a meeting between Mexico’s Economy Minister Marcelo Ebrard, US Secretary of Commerce Howard Lutnick, and US Trade Representative (USTR) Jamieson Greer in Washington on 28 January.

Despite fears that the USMCA could be replaced or even eliminated given the backdrop of unprecedented trade tensions in North America, Ebrard has expressed optimism that there will be an extension of the agreement, which was first implemented in 2020 to replace the North American Free Trade Agreement (Nafta) that established a free-trade zone between the three countries in 1994. With the USMCA review set to conclude on 1 July, a failure to reach an agreement to extend the deal for another 16-year term would trigger annual reviews until 2036, when the agreement could potentially expire.

While US President Donald Trump has threatened to walk away from the USMCA if he is not satisfied with progress, even at one point referring to it as “irrelevant”, both Mexico and Canada are pushing to keep the existing trilateral framework in place – most of all for the legal certainty that this would provide for investors. 

Many believe that an outright renewal of the existing deal is unrealistic at a time when there is a US administration so fond of using tariff threats to get its way, but the USMCA’s complete elimination is also considered unlikely: the US economy depends too much on cross-border trade and services with its neighbouring countries, with integrated North American trade boosting the US’s competitiveness significantly. Moreover, the surge in inflation and supply chain disruptions that could result from a collapse of the USMCA would prove unpopular among US voters, who are due to vote in crucial midterm elections in November. As a result, most observers expect something in between – although in exactly what form remains unclear.

After the bilateral meeting between the US and Mexico, both sides “highlighted the progress made in recent months”. Discussions likely included non-tariff barriers, the development of the key automotive industry, strengthening the security and resilience of supply chains, and reasons for the US trade deficit with Mexico. According to a USTR statement, the talks aim to establish “stronger rules of origin for key industrial goods, enhanced collaboration on critical minerals, and increased external trade policy alignment to defend workers and producers in the United States and Mexico and to combat the relentless dumping of manufactured goods in our region”. The countries have already moved on increasing cooperation on critical minerals via an action plan that was signed on 4 February.

• Critical minerals

As part of the critical minerals action plan, the countries will discuss coordinated trade policies and mechanisms, such as border-adjusted price floors for critical mineral imports and how these may be integrated into a plurilateral agreement on trade in critical minerals. The US and Mexico will also share information about the location of potential critical mineral deposits. Mexico has lithium reserves and is a producer of minerals including copper, silver, zinc, molybdenum, cadmium, barium, strontium, and fluorite. The plan was signed as the US held a critical minerals summit on 4 February, as it looks to reduce dependence on China for the minerals.

Mexico was at pains to emphasise the “constructive and positive” nature of discussions with the US negotiators. In addition, a telephone call the following day between Trump and Mexico’s President Claudia Sheinbaum to discuss trade, border security, and drug trafficking “went extremely well for both countries”, according to Trump. Despite tensions with the US over a range of issues from drug trafficking to water rights, Mexico’s move to implement tariffs of up to 50% on countries with which it does not have a trade deal, aimed at preventing Chinese goods from entering the US in particular, was likely well received by the US [EB-26-01]. 

Indeed, China represents perhaps the single most sensitive issue in Mexico’s discussions with the US, with officials in Washington making it abundantly clear that they will not tolerate Chinese firms using Mexico as a “backdoor” into the US market so that they can skirt tariffs. Other key areas include auto supply chains, with the review likely to address the origin of materials for electric vehicles, such as batteries and semiconductors. Meanwhile, unions are pressing for stronger, worker-focused reforms and standards, and the US remains concerned about Mexico’s recent judicial reforms and energy policies, which are seen to favour state-run enterprises over private US investors.

Observers say significant progress has been made in both Mexico and Canada to address trade tensions with the US. That has led to closer cooperation on non-trade issues such as fentanyl interdiction, migration, defence, and broader alignment on economic security measures. Compared to the rest of the world, Mexico and Canada face lower trade-weighted tariff exposure, at roughly 5% and 10% respectively, compared to about 19% for the rest of the world, and around 36% for China.

“In relative terms, this is a favorable outcome – but it would still amount to a Pyrrhic victory in a chronic battle against investment uncertainty. The equilibrium remains fragile and could be easily unravelled,” Diego Marroquín Bitar, fellow with the Americas Program at the Center for Strategic and International Studies (CSIS), recently wrote for the Inter-American Dialogue, a Washington-based think tank, arguing that, in effect, negotiations are likely to continue well beyond the July deadline, and very possibly into next year.

In Marroquín Bitar’s opinion, the main risk for Mexico is unilateral US action on Mexican soil, while Canada faces the potential reimposition of tariffs on key exports and renewed threats to its economic or political sovereignty, leading to an effective “decompartmentalisation” of the trilateral agenda. Although stagnation in security, migration, and defence cooperation has the potential to derail the discussions, “if managed carefully, North America’s trade architecture will be extended beyond 2026 – but not unchanged. A more restrictive version of the USMCA is likely to survive, but only after a long, contentious and politically costly renegotiation," concluded Marroquín Bitar.

According to an analysis published on 23 January by Oxford Economics, a UK-based consultancy, the most likely outcome (50% probability) is that the USMCA is renegotiated promptly after 1 July and a new deal is reached in the third quarter, leading to the removal of most US tariffs on Mexico and Canada, with Mexico likely to benefit from conceding to US demands on border security. Less likely (35%) is that the status quo will be maintained, with a failure to agree to extend the USMCA triggering mandatory annual joint reviews, lengthy negotiations, and continued heightened trade policy uncertainty. The consultancy views as relatively unlikely the worst- and best-case scenarios: complete elimination of the USMCA (10%), or its extension in its current form (5%), respectively.

Despite the risks, Alberto Ramos, an economist at Goldman Sachs, believes that Mexico will manage to preserve trade preferences. “We anticipate that the USMCA review will end up in broad terms preserving the spirit and preferences of the US pre-tariff USMCA, but our confidence that a tri-partite USMCA will be preserved is not high,” Ramos wrote in a recent note to clients, arguing that the likelihood of just a bilateral US-Mexico agreement is “not small”. He believes that the US could leverage the renegotiation process to push for policy objectives in other areas, such as security cooperation, while regional rules of origin may be tightened, and trade linkages between Mexico and China will be closely scrutinised.