Trump Says the USMCA Isn’t Dead—Here’s What Investors Need to Know

The U.S.-Mexico-Canada Agreement (USMCA) has been a focal point of geopolitical and economic tension in 2025, as President Donald Trump’s administration has leveraged the trade deal as both a shield and a sword. Recent statements and actions—from tariff adjustments to threats of renegotiation—have left investors wondering: Is USMCA collapsing, or is it evolving? The answer lies in dissecting the administration’s strategy, market reactions, and the delicate balance of trade leverage.

USMCA’s Current State: Tariffs as Leverage

Trump’s April 2025 executive order clarified the USMCA framework, distinguishing between compliant and non-compliant imports:
- USMCA-Compliant Goods: Maintain 0% tariffs, shielding sectors like autos and agriculture.
- Non-Compliant Goods: Face 25% tariffs, except for energy/potash (10%), unless IEEPA orders (linked to fentanyl/migration) are terminated. In that scenario, non-compliant goods revert to a 12% reciprocal tariff.

This bifurcated approach underscores the administration’s goal: enforce reciprocity while preserving USMCA’s core structure. However, Canada’s retaliatory 25% tariffs on non-USMCA-compliant U.S. vehicles and Mexico’s muted response highlight the fragility of this balance.

Market Reactions: Cautious Optimism Amid Uncertainty

• Mexico’s GDP Growth: Downgraded to 0.2% in 2025 (from earlier estimates) due to tariff impacts, but a rebound to 1.7% in 2026 is projected if USMCA survives its 2026 review.
• Currency Risks: The peso (MXN) is expected to weaken to 20.75 MXN/USD by year-end, reflecting trade policy uncertainty but not catastrophic devaluation.

Investors have reacted cautiously, with Mexico’s equity market (tracked by the iShares MSCI Mexico ETF, EWW) underperforming broader EM indices amid the tariff threat. Yet, the 10% effective tariff rate assumption—versus the initially feared 25%—has limited panic, as companies like Ford (F) and GM (GM) continue to rely on North American supply chains.

The Renegotiation Wild Card: Canada’s Push for Change

During May’s U.S.-Canada talks, Canadian PM Mark Carney argued that USMCA must evolve, noting “some things about it are going to have to change.” Key sticking points:
- Tariff Imbalances: Canada’s 25% tariffs on non-USMCA U.S. vehicles vs. U.S. Section 232 levies on Canadian steel/aluminum.
- Sovereignty vs. Reciprocity: Trump’s annexation jokes and Carney’s firm rejection signal that USMCA’s survival hinges on addressing non-tariff barriers (e.g., local content rules) without compromising sovereignty.

Risks and Opportunities for Investors

Risks:
1. Policy Volatility: A sudden spike in U.S. tariffs or a failed 2026 review could trigger a 2025-style sell-off in Mexican equities (EWW) and peso-denominated bonds.
2. Supply Chain Disruptions: Mexico’s 7% GDP dependency on Chinese intermediate goods (e.g., auto parts) could amplify costs if new tariffs are imposed.

Opportunities:
1. Long-Term Stability: If USMCA endures, sectors like automotive (F, GM) and semiconductors (INTC) may benefit from North American supply chain resilience.
2. Currency Plays: A weaker peso (MXN) could boost the profitability of U.S. firms with Mexican operations, such as Coca-Cola Femsa (FMX).

Conclusion: USMCA Lives—But Its Future Hangs on 2026

The administration’s 10% tariff compromise and Canada’s pragmatic stance suggest USMCA is not dead—yet. However, its long-term health hinges on resolving asymmetries in tariff reciprocity and non-tariff barriers.

Key data points reinforce this outlook:
- GDP Projections: Mexico’s 1.7% 2026 rebound relies on USMCA staying intact.
- Market Sentiment: S&P Global’s downgrade to 0.2% 2025 growth reflects caution but not despair.
- Policy Flexibility: The 12% post-IEEPA tariff baseline provides a safety net for compliant trade.

Investors should monitor the 2026 USMCA review closely. A successful renegotiation could unlock Mexico’s growth potential, while a breakdown risks a repeat of 2025’s volatility. For now, the agreement’s survival remains a bet on pragmatism over brinkmanship—a bet markets are cautiously willing to take.

In summary, USMCA’s pulse is weak but not flatlining. Investors should position for a bumpy road ahead but keep faith in its long-term survival—if the political will holds.