North America’s trade relationship is approaching a pivotal review with an unusual imbalance at the negotiating table. The United States and Mexico have already completed one bilateral round focused on automotive rules of origin, steel, aluminum and economic security, then moved into a second round in Washington covering agriculture, energy and competitive conditions. Canada, despite being the third member of CUSMA, has not participated in those formal U.S.-Mexico sessions.
That does not mean Canada has stopped negotiating. Canadian officials continue to meet separately with Washington, even as President Donald Trump questions whether the United States needs the agreement at all. With the July 1 review date closing in, the immediate risk is not an overnight end to free trade. It is that the rules governing one of the world’s most integrated manufacturing regions may begin taking shape before Ottawa has equal influence over them.
Washington and Mexico City Have Built a Bilateral Track
The first U.S.-Mexico round ended in Mexico City on May 29 with autos, steel, aluminum and economic security at the centre of the agenda. The Office of the U.S. Trade Representative said Washington entered the talks seeking to reduce its trade deficit with Mexico and strengthen American supply chains. Negotiators also discussed regulatory compatibility in industries such as medical devices and pharmaceuticals. The process continued with a second round in Washington on June 16 and 17, while a third meeting was scheduled for the week of July 20 in Mexico City.
The unusual feature is not that two CUSMA partners are speaking directly; bilateral preparation is common before a three-country review. What raises the stakes is that detailed proposals are being exchanged without Canada in the formal room. Reuters reported that Ottawa had been shut out of the U.S.-Mexico negotiating rounds, even though Canadian ministers continued holding separate meetings with U.S. officials. That creates the possibility that Washington and Mexico City could narrow their differences first, leaving Canada to respond to a framework that is already partly formed.
The Auto Proposal Rewrites the Regional Formula
The most consequential idea disclosed from the talks is a U.S. proposal to raise the regional-content requirement for passenger vehicles and light trucks from 75 per cent to 82 per cent. Within that total, Washington wants at least 50 per cent of a vehicle’s value to be produced in the United States. Reuters reported that the proposal presented to industry contained no separate provision for counting Canadian content toward that U.S.-specific threshold. The administration also sought a higher regional requirement for heavy trucks and a stricter method for calculating the origin of valuable components.
Those percentages may sound technical, but they determine whether a vehicle qualifies for preferential tariff treatment. Under the current agreement, 75 per cent of a passenger vehicle or light truck must originate in North America, while 40 to 45 per cent of qualifying vehicle value must involve high-wage production. The supply chains are already deeply intertwined: a USTR report cited industry modelling that found roughly half the content in Canadian-assembled vehicles comes from the United States, while about 35 per cent of the content in Mexican-assembled vehicles is American. A U.S.-only threshold could therefore shift sourcing decisions throughout the continent.
Steel and Aluminum Are Now Security Questions
Steel and aluminum are being negotiated as more than ordinary commodities. USTR paired the metals discussion with “economic security” and said it wants to prevent third countries from benefiting improperly from CUSMA preferences. That concern overlaps with Washington’s broader effort to tighten rules of origin and limit the use of imported inputs that pass through Mexico or Canada before entering the U.S. market. The current automotive rules already require producers to buy at least 70 per cent of their steel and aluminum by value from within North America.
For Canada, the stakes are immediate because metals production is unusually dependent on U.S. demand. Statistics Canada estimated that U.S. demand supported about 9,800 jobs in Canadian iron and steel mills and ferro-alloy manufacturing in 2024, equal to 67 per cent of payroll employment in that industry. Natural Resources Canada reported that Canada exported $14.4 billion in iron and steel and $13.8 billion in aluminum to the United States in 2025. Canada has also kept counter-tariffs on U.S. steel, aluminum and automobiles while sectoral disputes continue. Any metals arrangement reached first between Washington and Mexico could influence market access, sourcing and investment decisions north of the border.
Canada Is Outside the Room, Not Outside the Negotiation
Ottawa’s exclusion from the formal U.S.-Mexico rounds has not produced a complete diplomatic freeze. Trade Minister Dominic LeBlanc met U.S. Trade Representative Jamieson Greer on June 16 and described the discussion as lengthy and constructive. The two agreed to speak again the next week. Earlier in June, Canada asked both the United States and Mexico to extend CUSMA for another 16 years, arguing that a longer horizon would give companies greater certainty when making investment and supply-chain decisions.
Prime Minister Mark Carney has also said Canadian and U.S. officials held detailed, technical trade discussions around the G7 summit. His public response to Trump’s criticism of CUSMA was measured: he acknowledged that the U.S. president has never been an enthusiastic supporter of major trade agreements, while emphasizing that specific areas of cooperation remain open. Taken together, these contacts suggest a parallel negotiating channel rather than total isolation. The disadvantage for Canada is sequencing. Ottawa is discussing the relationship with Washington while Washington and Mexico are already testing concrete sectoral proposals against each other, particularly in autos and metals.
July 1 Is a Review Deadline, Not a Sudden Expiry
The July 1 date is often described as a deadline, but CUSMA does not automatically vanish that day. Article 34.7 requires the three governments to conduct a joint review on the agreement’s sixth anniversary and decide whether they want to extend its term. If all three confirm an extension, the agreement receives a new 16-year term and returns to a six-year review cycle. If one or more governments withhold approval, the pact remains in force and the parties hold annual reviews for the rest of its current term.
Without a later extension, CUSMA is scheduled to expire in 2036. That means a failure to renew in 2026 would begin a decade of recurring uncertainty rather than produce an immediate border shock. There is, however, a separate withdrawal clause that allows any party to leave six months after giving written notice. Trump’s statements therefore matter even though July 1 is not a cliff. Businesses can continue trading under the agreement, but they may face years of questions about future tariff preferences, origin rules and investment conditions. The economic cost can emerge through delayed decisions long before the legal text expires.
Canada’s Auto Exposure Makes Delay Costly
Canada’s automotive sector has little room to treat the review as a distant legal exercise. Statistics Canada reported that 94.1 per cent of Canada’s $80.3 billion in motor vehicles and parts exports went to the United States in 2024. A separate analysis found that U.S. demand accounted for 76.4 per cent of Canadian automobile and light-duty vehicle manufacturing output that year and supported about 27,000 jobs. In 2025, Canadian motor-vehicle exports to the United States fell 9.6 per cent, while more than 93 per cent of the country’s vehicle exports still went south.
Those figures translate into real pressure in assembly communities and the supplier towns around them. A change in the origin formula can affect where an automaker buys engines, batteries, stampings or electronics, and whether a Canadian-built vehicle receives favourable treatment at the U.S. border. The Bank of Canada has warned that an unfavourable CUSMA outcome could weaken Canadian export competitiveness, lowering production, investment and hiring. Even if existing trade preferences remain temporarily intact, uncertainty can shape decisions about the next vehicle platform or plant upgrade. In an industry where capital plans stretch across years, being late to the rule-making process can be costly.
Mexico Has Strong Reasons to Keep Moving
Mexico enters the talks with leverage, exposure and a strong incentive to preserve market access. USTR data show that two-way U.S.-Mexico goods trade reached an estimated $872.8 billion in 2025. American imports from Mexico totalled $534.9 billion, while U.S. exports to Mexico reached $338 billion, leaving a U.S. goods deficit of about $196.9 billion. Washington sees that imbalance as evidence that the rules need to change; Mexico sees continued access to its largest market as essential to factories, employment and investment.
That helps explain why Mexico has supported a 16-year extension of CUSMA while also engaging quickly on sector-specific demands. President Claudia Sheinbaum’s government previously signalled that it wanted an early understanding with Washington on automobiles, steel and aluminum before the formal review. Mexico must balance several objectives at once: protect its manufacturing base, answer U.S. concerns about Chinese inputs and transshipment, and avoid rules that force too much production north of the border. By staying at the table, Mexico can help shape the U.S. proposals. Canada’s concern is that this bilateral momentum could produce compromises that work for Washington and Mexico City but require difficult adjustments in Ontario, Quebec and other industrial regions.
The Next Phase Is About Leverage, Not a Finished Deal
The public record shows movement, but not a completed U.S.-Mexico settlement on autos or metals. The first round established the agenda and exposed the U.S. auto-content proposal. The second round broadened the discussion to agriculture, energy and competitive conditions. A third round is planned for July, after the formal review date, while Canada and the United States are expected to continue their own contacts. That timeline makes a comprehensive renegotiation before July 1 unrealistic.
The more likely near-term outcome is an unresolved review followed by continued bargaining. The Bank of Canada has outlined several possible paths: a limited extension, a major renegotiation, annual reviews through 2036, withdrawal by a member, or replacement with bilateral deals. For manufacturers, the distinction between “review” and “renegotiation” will matter less than the signals sent about future costs. Companies will watch whether Canada gains a formal place in the detailed talks, whether Washington softens its demand for 50 per cent U.S. vehicle content, and whether steel and aluminum receive preferential treatment. The agreement may remain legally intact, yet the balance of power inside it is already being tested.
