Brookings report analyzes the present and future of North America’s most important trade agreement

In 2020, The United States-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA) as the primary trade framework for the three countries. The agreement is now being reviewed by the three countries. In a new report by the Brookings Institution, experts delved into what the agreement has meant for the three countries, and how the three states can ensure that the partnership can be successful going forward.

Over the past six years, USMCA has been central to trading relationships between the three countries. As called for in the original agreement, they are now discussing whether to renew it, and if so, in what form.

The Trump Administration has indicated that without concessions from Mexico and Canada, the U.S. will not renew the agreement. If this happens, USMCA would be reviewed annually for ten years, and would then expire if not renewed during that period. To help understand what’s at stake, the report analyzed the agreement’s effect on the economies of the three countries, as well as the implications for this year’s joint review.

Brookings researchers agree that overall, USMCA has been net positive for all three, and has contributed to a dynamic, robust North American economy. The researchers found that the agreement has led to significant growth in trade and investment across the three nations.

Over the past year, USMCA has become even more central to economies of these three countries. As the Trump Administration’s tariffs have led to a reduction in trade with China, trade with Mexico and Canada has become comparatively more active, despite also being subject to tariff increases in 2025. By and large, the recent U.S. tariffs for China have been significantly steeper than those for Mexico and Canada; this may play a role in the relative strength of trade with the latter two countries, although the evidence so far is not conclusive. Mexico is the top source of imports into the U.S., with Canada second. Mexico is also the top export market for the U.S., with Canada next. Mexico is the top U.S. trading partner, with total bilateral trade totaling $873 billion in 2025, while Canada follows with $719 billion worth of trade. In 2025, Mexico–U.S. trade represented more than 15% of all the goods exported and imported by the U.S. while trade with Canada was nearly 13%.

In recent years, both Canada and Mexico have sought to navigate a course that fosters economic interdependence with the U.S., while also allowing for political independence and increased trade with other countries. In the review, they will need to find a way to balance these sometimes-conflicting desires.

Over the past year, USMCA has become even more important, as firms in Mexico and Canada have used it as a way to adjudicate U.S. tariff issues; as a result most products traded under USMCA remain tariff-free. The exemption of products that qualified under USMCA limited damage to both the Canadian and Mexican economies and reinforced the value of the agreement for these countries.

At the same time, increased U.S. tariffs aimed at Mexico and Canada have undermined trust and confidence among stakeholders in those countries. In particular, the North American automotive industry, which has long been one of the continent’s most important and interconnected, is facing challenges from the tariffs, which have led to higher costs, fragmented supply chains, and uncertainty. Mexico’s transportation sector, which is highly integrated with the U.S. transportation industry, represents 40% of total trade with the U.S.

Below is a summary of the report’s findings regarding particular industries and issues, highlighting where the law has resulted in gains and also where reforms are still needed.

Agriculture

Together, the U.S., Canada, and Mexico are among the most competitive and productive agricultural regions in the world. The U.S. and Canada are consistently ranked in the top five global exporters of agricultural products. The North American agri-food sector contributes nearly $2 trillion to the three countries’ combined GDP and supports more than 40 million jobs across the continent.

Intra-North American trade anchors the agricultural economies of all three countries. Since the inception of NAFTA, U.S. agricultural exports to Canada have quadrupled, while U.S. agricultural imports from Canada have grown tenfold. By consolidating market access, enhancing regulatory coherence, and instituting effective dispute resolution, USMCA has fostered significant North American agricultural integration, making the sector more competitive and resilient across the three countries.

Steel

Over the past three decades, the steel industry across Canada, Mexico, and the U.S. has become a true regional market, with production, processing, distribution, and consumption across borders. USMCA has helped build and sustain this; in 2024, Canada, Mexico, and the U.S. imported 49 million tons of carbon steel with nearly a third of these imports coming from within the region. The USMCA review is a chance for stakeholders to decrease tariffs and other barriers to the flow of steel-related goods and services throughout this integrated market.

Pharmaceuticals

The USMCA review is an opportunity to transform and strengthen the North American pharmaceutical industry. The U.S. leads the world in pharmaceutical research and development, but also relies heavily on foreign suppliers for most of the active pharmaceutical ingredients (APIs) used to make finished drugs. Experts estimate that between 70% to 80% of the APIs used in U.S. medicines come from overseas; most of these supplies come from Asia, especially China and India. The pandemic underscored the vulnerability of this arrangement, as API supplies were interrupted. This is not only an economic risk, but a national security and public health issue as well.

The Canadian and Mexican pharmaceutical industries are less well developed, and in general, the region remains fragmented. With the USMCA review, the U.S., Canada, and Mexico can craft a framework that fosters growth, integration, and the near-shoring or reshoring of more of the supply chain process, including APIs.

Rapid Response Labor Mechanism

A key provision in USMCA is the Rapid Response Labor Mechanism (RRLM), which is designed to protect labor rights in Mexico. The RRLM allows stakeholders in the U.S. and Canada to quickly bring cases of possible Mexican labor violations to judgment before a committee of U.S. labor relations experts. While the provision has been largely successful—more than 40,000 Mexican workers have benefitted, receiving back pay or reinstatement, or holding free and fair union elections, the provision is not perfect. In some cases, it has not curtailed undemocratic unions, and it has not lowered the wage gap between U.S. and Mexican workers. In addition, most evidence indicates that it has not stemmed the loss of U.S. manufacturing jobs; policymakers had hoped that by closing the wage gap between the U.S. and Mexico, it would decrease the incentive for companies to move jobs south of the border. (Many experts argue that in general, U.S. jobs are not migrating to Mexico, but to Asia.)

The USMCA review can improve on some aspects of the RRLM. The new version should include agricultural workers, extend coverage to workers in the U.S. and Canada, and create an integrated wage floor. Another key issue: right now, enforcement flows in one direction—from the U.S. and Canada to Mexico. This asymmetry undermines the rule’s legitimacy, and the authors argue that all three countries should be able to use the RRLM to protect workers.

Conclusion: Short-Term Leverage Versus Long-Term Cooperation

More than anything else, USMCA has provided a stable, predictable framework for the U.S., Canada and Mexico to foster their growing economic development, with benefits for all three countries. The Trump Administration appears to be taking the view that the current USMCA review is an opportunity to push for further concessions from Canada and Mexico. Brookings experts believe that while this strategy may secure short-term concessions, it risks eroding the integrated continental economy that serves long-term American—as well as Canadian and Mexican—interests.

About the report:

The report is a joint effort by more than two dozen researchers from Brookings, as well as contributors from academia, government, business, and civil society.

About Brookings 

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