By Liam Denning | Updated on Jun 11, 2026 at 12:00 PM
The seemingly shallow rebranding of NAFTA as USMCA revealed, in retrospect, a deeper problem — one that now risks the industry at the heart of the trade deal: automobile manufacturing.
Whereas the North American Free Trade Agreement advertised its continent-spanning scope, the United States-Mexico-Canada agreement that President Donald Trump signed in his first term delineated its fissile parts. It’s a subtle distinction, but it makes all the difference.
Trump said on Wednesday that he won’t renew the free-trade agreement between the three countries for another 16 years. Assuming he follows through, an annual review process then kicks in, though the deal remains in force for up to a decade, unless one country exits entirely. Talks will almost certainly drag past the July 1 deadline for the extension, risking the agreement giving way to a hybrid of tripartite and bilateral deals. For US autos, it likely spells further supply-chain disarray and even higher vehicle prices.
Trump in 2020 hailed the USMCA as a “partnership with Mexico and Canada and ourselves against the world.” He has since corroded that with tariffs, “51st state” jibes about Canada, and an escalating pressure campaign that recently drew a sharp accusation of domestic political interference from Mexican President Claudia Sheinbaum. From ‘us against the world’ to ‘US against its neighbors’ in just six years.
USMCA effectively tightened NAFTA’s conditions for free-trade treatment. For vehicles, it raised the North American content threshold to 75% and imposed a minimum labor content of 40% for workers earnings at least $16 an hour. The objective was to re-shore more factories to North America and, via the labor content rule, ensure they weren’t all built in lower-wage Mexico.
Judging by recent reports, the US now wants, among other things, the North American value threshold raised again, plus a specific level for US content, perhaps 50%. As it stands, compliance with USMCA’s North American content requirements is high, with 90% of autos and between 62% and 90% of various categories of parts imported by the US from Canada and Mexico meeting them, according to the Boston Consulting Group. US content in imported autos averages 42%, however, which clearly irks the Trump administration.
Higher domestic content would mean higher prices. New US vehicles average more than $51,000 already. They would be more expensive still if the industry had passed on much of Trump’s tariffs last year. While Detroit is shifting some capacity home to appease the White House, doing so will inevitably raise production costs, especially if Mexico’s contributions are reduced. The United Auto Workers, unsurprisingly a fan of protectionism, has called for a North America-wide minimum wage , which deserves points for imagination, if nothing else.
Tighter, more complex rules would also throw sand into frictionless free trade. Even the federal government’s own classification system lumps together US and Canadian auto parts as domestic, a testament to the supply chain’s tight integration. Ford Motor Co.’s supply base “goes about eight companies deep,” according to Chief Executive Officer Jim Farley. Yet the industry only has good visibility on components’ provenance perhaps “two to three levels down,” according to Dan Hearsch, who co-leads the global automotive and industrial practice at AlixPartners LLP.
The objective of any autos policy should be a dynamic domestic sector with sufficient industrial capacity to support workers making innovative, sustainable and affordable vehicles. Trump seems overwhelmingly focused on the industrial capacity bit.
“It’s funny, government officials seem to think of production capacity as one big lake,” says Michael Robinet a vice president at S&P Global Mobility; a manufacturing pool where plants open and close wherever without cost. But each new factory has “their nuances, their supply base or logistics patterns,” he adds.
While Mexico lost 300,000 auto-sector jobs last year, according to Diego Marroquín Bitar at the Center for Strategic and International Studies, there was no corresponding increase at US auto factories, where payrolls also fell. Washington’s whiplash of trade policy is itself a powerful deterrent to investment; the six years it took for Trump to sour on his USMCA deal is equivalent to just one development cycle for a new vehicle.
Behind Trump’s urgency on trade looms China. High US tariffs on Chinese vehicles are necessary given the formidable competitive threat. But Trump seems, strangely, to be cozying up to Chinese leader Xi Jinping even as he bullies Canada and Mexico.
Browbeating our neighbors into a trade deal skewed toward the US undermines what was an already strong foundation for defense against China’s competitive threat. While Chinese penetration of the Mexican auto market rightly raised concerns about transshipment, Mexico has already proposed much higher tariffs on autos and parts from the Asian nation. Yet, as Marroquín Bitar catalogued in a recent report , Trump has commingled previously siloed security and trade issues in US dealings with Mexico and kept on upping the ante even after concessions. Hence Sheinbaum’s recent rebuke.
Canada, also on the receiving end, responded by cutting a deal with Beijing to allow in a small number of Chinese electric vehicle imports at a reduced tariff rate. Both Canada and Mexico must consider the future of their own auto sectors. Ties to the US market are invaluable, but must be balanced with the need to embrace transformational shifts in global autos, such as the rise of EVs, against which Trump has set himself.
In strong-arming its neighbors, the US gives them cause to diversify away as much as possible, and it will reap the costs of disjointed supply chains, higher vehicle prices and diminished influence. Fortress North America is large, efficient and has goodwill and institutional tools to address any shortcomings. Fortress USA would be weaker, and needlessly so.
More From Bloomberg Opinion:
Want more Bloomberg Opinion? OPIN <GO>. Or you can subscribe to our daily newsletter .