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Key takeaways:

• • • The deal isn’t dead, but it’s not settled either 鈥� USMCA stays in force for now, but the refusal by the US to confirm a 16-year extension triggers rolling annual reviews, with a hard expiration in 2036 if no resolution is reached.

    • Auto rules of origin are the central battleground 鈥� Washington is pushing to raise North American content requirements well above the current 75% threshold, with a specific push for more US-based final assembly and parts production.

    • Uncertainty itself is a cost 鈥� Automakers make multibillion-dollar, multi-decade plant and supply-chain investments, and not knowing what the rules will look like next year (let alone in 2036) makes those bets harder to justify.

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On July 1 鈥� the sixth anniversary of the United State-Mexico-Canada Agreement聽(USMCA), taking effect 鈥� the United States, Mexico, and Canada were required under the agreement’s to jointly decide whether to extend the pact for another 16 years. The U.S. Trade Representative, Jamieson Greer, announced that the Trump Administration would not agree to renew USMCA in its current form, citing persistent US trade deficits with both neighbors and what the administration considers 鈥渦nresolved shortcomings鈥� in the deal. The move by the US pushed the North American trade pact into a new period of annual reviews and extended negotiations over tariffs, market access, and manufacturing rules.

This isn’t a withdrawal; indeed, the agreement will remain in force for another decade, providing that none of the three countries exits the agreement. However, the lack of a clean renewal opens the door to years of contentious negotiations over the rules governing continent-wide supply chains. Both Canada and Mexico had favored a straightforward 16-year extension, but the US was unwilling to sign off without changes.

Why automakers are ground zero

No sector is more exposed to this outcome than automotive manufacturing. Vehicles and parts routinely cross the borders of the US, Mexico, and Canada multiple times before final assembly, a pattern built up since the North American Free Trade Agreement (NAFTA) first opened North American auto trade in 1994, and the sector alone accounts for roughly 18% of all trade among the three countries.

At the heart of the dispute is the 鈥� the share of a vehicle’s value that must originate in North America to qualify for duty-free treatment. USMCA currently sets that threshold at 75% for passenger vehicles and light trucks, up from 62.5% under the old NAFTA rules. The Trump administration is reportedly seeking to push that figure to 82%, with half of that value required to come specifically from the United States 鈥� a change aimed squarely at pulling more engine, transmission, and assembly work back across the border.

That shift likely would ripple through the industry unevenly. The annual from American University’s Kogod School of Business, which tracks US content in vehicles annually, found that only 109 models are estimated to hit 51% or more US content for its upcoming index, down from 123 the year before 鈥� a sign of how far the current supply chain sits from any tightened standard. As one researcher involved in that analysis explains, automakers will ultimately have to weigh absorbing new tariff costs against relocating engine, transmission, and component production 鈥� or even entire assembly plants 鈥� into the United States.

have largely tried to protect the status quo rather than push for disruption. General Motors, Ford, and Stellantis have publicly urged Washington to extend the existing agreement, arguing it’s essential to American production, even as they privately brace for the possibility of major changes. Stellantis has also warned regulators about a separate risk: If US rules don’t keep pace with vehicles imported from outside North America, American-built models will keep losing ground to Asian imports, to the detriment of US autoworkers.

Managing the uncertainty tax

Perhaps the most immediate effect isn’t a specific rule change 鈥� it’s the absence of a deadline forcing one. that the decision doesn’t immediately change the flow of goods and services across North America, but it could weigh on business planning, particularly in industries that depend on long-term capital commitments.

Scott Lincicome of the Cato Institute, for example, pointed to exactly this risk, telling that the resulting uncertainty could weigh on investment decisions, which matters enormously for an industry that plans plant investments, supplier contracts, and vehicle platforms on five- and ten-year horizons.

There’s also a geopolitical wrinkle shaping the negotiations reflected in a growing concern in Washington over Chinese-made components entering North American supply chains through Mexico. Lawmakers have already proposed legislation directing US trade officials to prioritize protecting USMCA from Chinese investment during the review, which could translate into rules disqualifying vehicles that use components tied to Chinese state actors.

What happens next with the USMCA?

Formal bilateral talks between the US and Mexico are continuing, while US-Canada negotiations have barely begun. The US and Mexico are set to meet again the week of July 20 for a third round of bilateral negotiations tied to the joint review. Barring a breakthrough, expect this to become a recurring headline 鈥� another review, another round of tariff and rules-of-origin brinkmanship, repeated annually until either a deal is struck or the clock runs out in 2036.

For automakers, the message is less about any single new rule and more about planning in an environment in which the ground can shift every year. That’s a very different operating reality than the one the industry built its North American footprint on over the past three decades.

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You can find out more about the USMCA and the challenges it faces here