Trump's USMCA Review Targets China's Backdoor Into North American Trade

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A Review, Not a Rubber Stamp

The United States, Mexico, and Canada are in the middle of the first mandatory review of the U.S.-Mexico-Canada Agreement (USMCA), the trade pact that replaced NAFTA in 2020. The review could result in the agreement being revised or even phased out, and it is the first review of its kind written into any U.S. free trade agreement.

Rather than automatically renewing the deal for another 16 years, the Trump administration formally declined the automatic extension on July 1, 2026, and instead started an annual review process. U.S. and Mexican negotiators have already held several rounds of talks, focused heavily on automotive rules of origin, steel and aluminum manufacturing, and economic security measures aimed at China.

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Why Steel Became the Sticking Point

The core U.S. complaint is that China, facing enormous domestic overcapacity, has been routing steel through Mexico and Canada to reach American consumers at lower tariffs than if it shipped directly. Trade data backs this up. The OECD's 2026 Steel Outlook projects that excess global steelmaking capacity will grow from 640 million tons in 2025 to 745 million tons by 2028, with China exporting a record 131 million tons in 2025 — 153% more than in 2020. The OECD bluntly warned that "trade tools applied by importing countries are enforcement responses to dumping and subsidization, but they treat the consequences rather than the causes."

Mexico has felt the pressure directly. Mexican crude steel production fell almost 6% in 2025 while domestic demand dropped roughly 4.6%, hit by a wave of cheap Asian imports and a slowing economy. Even so, Chinese exporters kept pushing volume through before new barriers took effect: Chinese steel exports to Mexico jumped nearly 17% in November 2025 alone, even though 21 separate anti-dumping duties were already in place against Chinese steel in the Mexican market.

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Mexico and Canada Start Closing the Door

Facing this pressure — and wanting to preserve access to the U.S. market — both countries have moved to tighten their own trade defenses. Mexico's economy ministry announced in March 2026 that tariffs of 10% to 35% on Asian steel imports, first imposed in 2024, would be made permanent, covering 220 products from China, South Korea, Vietnam and other countries without a Mexican trade agreement. Officials framed it as a matter of survival for the domestic industry, with one Mexican trade official stating plainly that the government has to make a special effort to protect and defend the sector, so the tariffs will be renewed permanently.

Canada has taken parallel steps. Canada has recently made major improvements to scrutinize, verify, and validate the origin of imported steel specifically to address U.S. concerns about transshipment. Canadian authorities also introduced a new 25% tariff on Chinese steel products in December 2025.

Beijing has not stayed quiet about being squeezed out. When Mexico's Senate approved its tariff package in December 2025, China's Ministry of Commerce said the move would "significantly harm" Mexico's trading partners and called on Mexico to "correct its misguided practice of unilateralism and protectionism." The complaint rings hollow given that Chinese overcapacity is the root cause the tariffs are meant to address.

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What Washington Wants From the Review

U.S. negotiators are reportedly seeking structural fixes rather than one-off tariffs. Trade analysts expect tighter automotive rules of origin, new provisions on EVs and critical minerals, restrictions on Chinese-affiliated manufacturing, and stronger labor enforcement to be part of any renewed deal. One proposal under discussion goes further still: a joint U.S.-Mexico system using blockchain-based origin verification and AI-driven trade monitoring to identify transshipped goods containing Chinese components in real time.

The stakes are considerable for businesses on both sides of the border. The review covers a trade relationship worth about $1.8 trillion a year, and companies that shifted manufacturing to Mexico or Canada specifically to avoid China tariffs now face a range of possible outcomes rather than a fixed cost structure. Steel tariffs remain a major irritant in the talks: Mexico and Canada have made removing the 50% U.S. Section 232 tariffs on their own steel exports a top priority, even as Washington pushes for bigger structural changes and has floated withdrawing from the pact altogether.

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The Bigger Picture

There is no legal cliff forcing a rushed deal. If the three governments don't agree to renew this year, USMCA stays in force under rolling annual reviews until at least 2036. That gives the Trump administration room to hold out for real concessions rather than a symbolic renewal.

The broader trade backdrop makes the stakes even clearer. The average U.S. effective tariff rate on Chinese goods reached roughly 37% in 2026, far above the rates applied to Mexico (12.8%) and Canada (8.1%) — a gap large enough to make routing goods through North American neighbors an attractive workaround unless the loopholes are closed. Notably, aggregate trade data so far shows little sign of large-scale Chinese transshipment through Mexico, whose Chinese imports actually fell slightly in 2025 — evidence that Mexico's own tariff hikes and stricter enforcement may already be having an effect, even before the USMCA review concludes.

For the Trump administration, that is exactly the point of building leverage into a review clause rather than treating it as a formality: it gives Washington the chance to lock in real reforms before signing on for another decade and a half.

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Sources

1. Baker Institute, "Strategic Priorities for the 2026 USMCA Review" – https://www.bakerinstitute.org/research/strategic-priorities-2026-usmca-review
2. S&P Global / Platts, "Canada, Mexico push for steel tariff relief amid USMCA negotiations" – https://www.spglobal.com/energy/en/news-research/latest-news/metals/061226-canada-mexico-push-for-steel-tariff-relief-amid-usmca-negotiations
3. Brookings Institution, "USMCA has strengthened economic integration in North America" – https://www.brookings.edu/articles/usmca-has-strengthened-economic-integration-in-north-america/
4. Brownstein Hyatt Farber Schreck, "Trump Administration Decides Against Renewing USMCA, Opts for Annual Review Process" – https://www.bhfs.com/insight/trump-administration-decides-against-renewing-usmca-opts-for-annual-review-process/
5. Congress.gov / Congressional Research Service, "USMCA Joint Review: Background on Prior Negotiations and Selected Issues for Congress" – https://www.congress.gov/crs-product/R48964
6. Mexico Business News, "Mexico Extends Duties on Chinese Steel Sinks Amid Global Glut" (citing OECD Steel Outlook 2026) – https://mexicobusiness.news/trade-and-investment/news/mexico-extends-duties-chinese-steel-sinks-amid-global-glut
7. Mexico Business News, "Mexico Makes Steel Tariffs on Asian Imports Permanent" – https://mexicobusiness.news/mining/news/mexico-makes-steel-tariffs-asian-imports-permanent
8. GMK Center (citing La Jornada / New York Times), "Mexico approves tariff increases on Chinese and other Asian imports" – https://gmk.center/en/news/mexico-approves-tariff-increases-on-chinese-and-other-asian-imports/
9. Reuters via AOL, "Mexico set to raise tariffs on imports from China, Bloomberg News reports" – https://www.aol.com/news/mexico-set-raise-tariffs-imports-205912296.html
10. Discovery Alert, "Mexico Implements Steel Tariffs on Chinese Imports 2026" – https://discoveryalert.com.au/mexico-steel-import-tariffs-china-2026-trade-dependencies/

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