The July 1 deadline for the USMCA six-year review is approaching and almost nobody in trade circles believes it will be met cleanly. A Scotiabank-hosted event in Mexico City this week with CSIS fellow Diego Marroquín Bitar laid out why, and the takeaway is straightforward: expect a drawn-out, painful process that extends well into 2027, with plenty of uncertainty along the way.
That's a bearish scenario for both CAD and MXN and helps to explain why the loonie has traded cautiously despite the big rally in oil prices.
The base case — what Marroquín and CSIS co-author Bill Reinsch call a "painful extension" — means Mexico and Canada eventually make enough concessions on energy, steel rules, Chinese investment, and other sore points to get Washington to sign off. But that deal won't come easily, and the fact that serious bilateral talks got started late makes a tidy resolution this year nearly impossible, they believe.
What's interesting is how differently Ottawa and Mexico City are playing this. Mexico is leaning in — deepening integration with the U.S., trying to make itself indispensable to American supply chains, cooperating on fentanyl enforcement more than many expected under President Sheinbaum. Canada is hedging, diversifying trade partners to reduce its leverage exposure to Washington. Both strategies carry risk. Mexico's accommodation could still run into domestic political constraints around energy sovereignty and judicial reform. Canada's diversification play is limited by geography — you can only pivot so far when 75% of your exports go south.
The China angle is the one that has real bipartisan heat in Washington. Both parties want Chinese investment out of Mexico's strategic sectors — EVs, energy, infrastructure — and they view Mexico as a potential back door for Chinese inputs entering North American supply chains. That makes for a problem but Mexico has signaled alignment here and the U.S. will want it codified in the agreement with teeth.
Rules of origin in autos are the other flashpoint to watch. The current 75% regional content threshold could be pushed toward 85%, which manufacturers with Mexican operations say isn't feasible on a short timeline. Tighter rules without transition periods would disrupt the integrated production model that makes North American auto manufacturing competitive in the first place. The irony of protectionist overreach making the continent less competitive is not lost on anyone at the negotiating table, but that doesn't mean it won't happen.
There's a wild card worth flagging. The Supreme Court's ruling against IEEPA tariffs has taken away Washington's easiest unilateral tool, which means the USMCA review itself becomes the primary U.S. leverage point. That concentrates the pressure but also raises the stakes — if the administration can't extract concessions through the review process, there's no plan B sitting in the back pocket.
The geopolitical backdrop may actually help. The U.S. has limited bandwidth with the Iran situation still unresolved, and opening too many fronts simultaneously carries costs heading into midterms. That could paradoxically push Washington toward getting something done on USMCA rather than letting it languish.
Near-term milestones: USMCA preparations should ramp through April. The USTR Section 301 investigation covering both Mexico and Canada has an April 15 deadline for written submissions, with hearings starting April 28. That's when the real contours of U.S. demands will start to crystallize.
The advisors in the report believe the USMCA probably survives in some form — the economic integration runs too deep for anyone to walk away. But the version that emerges on the other side could look meaningfully different, with tighter rules, more restrictions, and a power dynamic that tilts further toward Washington. For anyone positioned in Canadian or Mexican equities, the auto sector, or cross-border supply chain plays, this is the slow-moving story that deserves more attention than it's getting.
Ultimately, I believe that it will be a big tailwind for MXN and CAD once it's resolved but they raise good points about the negotiations dragging on.
