USMCA Uncertainty Hurting Investment, Observers Say
If the U.S. chooses the middle path of neither terminating USMCA nor renewing it for 16 years, and the process of negotiation continues for years, that will stop investors from opening or expanding manufacturing plants in Mexico and Canada, a think tank expert said.
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Christopher Sands, who leads the USMCA initiative at the Brookings Institution, said that result is very much wanted by President Donald Trump. He was speaking during a May 26 webinar hosted by Brookings. Sands said that the administration's agenda is not nearshoring or reconfiguring supply chains to rely on allies, it's bringing more manufacturing to the U.S. that was previously done in other countries. He said the administration has been trying to make sure all the high-value activity in automaking and critical minerals processing is done in the U.S., and only lower-value work is done in Mexico and Canada.
Sands said neither Canada nor Mexico will get the investment they need as long as the U.S. is "so willing to be predatory against its neighbors."
The event, called, "High Wire: The Sheinbaum administration and the future of U.S.-Mexico relations," was moderated by Mary Beth Sheridan, a former Mexico City bureau chief for the Washington Post. She noted that even as the administration tries to drive manufacturing home, the amount of imports from Mexico has grown. She asked if Mexico is indispensable to the U.S. on trade.
Vanda Felbab-Brown, a senior foreign policy fellow at Brookings, said that when there were reciprocal tariffs in place, with most Mexican goods exempted, "the Mexican environment has still been highly advantageous to U.S. businesses."
But, she said, if the new Section 301 tariffs are blocked by the courts, it may be that the uncertainty on whether USMCA will be renewed will become more significant to sourcing managers.
Sands said that administration officials have talked about trying to harmonize tariffs in Canada, Mexico and the U.S., "in exchange for, perhaps, lower tariffs" within North America.
Many of Canada's top exports to the U.S. -- cars, pickup trucks, heavy trucks, aluminum -- are subject to either 25% or 50% tariffs. Cars and pickup trucks are also one of Mexico's top exports to the U.S.
Sands said that Canada and Mexico might be willing to create a Fortress North America in some sectors "but only if the U.S. was willing to make up what China is willing to offer."
He said that Canada sells agriculture, minerals and softwood lumber to China. Ending some retaliation against Canadian agricultural exports is why Canada's prime minister agreed to allow 49,000 Chinese-made electric vehicles to come in at the most favored nation rate of 6% rather than 100%.
But, in order to get Canada and Mexico on board, he said, they'd have to be convinced the U.S. is consistent and trustworthy.