The USMCA Review Is Here. Here Is What Is Driving It.

Threats are politically powerful. The rhetoric is loud. Yet the structural realities are quieter, and far more important. U.S. trade with Canada and Mexico benefits workers, families, and industries across the region. That is what North America Compass is about.

The USMCA’s mandatory joint review was always coming. What nobody anticipated was everything surrounding it.

On March 18, Washington and Mexico City formally launched the review (bilaterally, without Canada at the table). That single decision tells you more about the current state of North American relations than any press release. The trilateral architecture that underpins nearly $2 trillion in annual trade is now being negotiated in pieces, under pressure, with less than four months before the statutory decision date.

Three developments since last year have materially changed the trajectory. The U.S. Supreme Court struck down the administration’s broadest tariff authority under IEEPA. Mexico’s army killed Jalisco New Generation Cartel leader El Mencho, delivering the Sheinbaum government its most significant security result to date. And U.S. threats against Canadian political and economic sovereignty have escalated far beyond trade rhetoric. Same agreement. Very different negotiating environment.

Here is what is driving what happens next.

Think of the USMCA as an hourglass. July 1, 2026 is not a deadline for completing negotiations. It is the moment when the three governments must decide whether to flip the glass and restart the clock, locking in another 16 years, or let the sand keep falling. If they flip it, the next review comes in 2032. If they do not, the agreement enters annual renewal cycles and expires in 2036. That is when the sand runs out entirely.

A clean, early extension by July 1 is now unlikely. The review launched only on March 18. Working groups that were supposed to form early in the year have not materialized. Bandwidth is being consumed by Section 232 tariff negotiations that were never part of the original review design. What July 1 will likely produce is not a finished agreement but a signal about which direction the parties are heading and whether the hourglass gets flipped or left to drain.

For business leaders and investors, that distinction matters enormously. A reset in 2026 means 16 years of relative predictability to plan supply chains, capital allocation, and market strategy around. Annual reviews mean 16 years of recurring uncertainty, renegotiation costs, and compressed investment horizons. The question is not just political. It is the difference between building for the long term and managing year to year.

The Supreme Court’s 6-3 decision striking down IEEPA tariffs is the most structurally significant legal development of 2026. The court held that the power to impose tariffs is reserved to Congress unless specifically delegated. Within hours, the administration invoked Section 122 of the Trade Act of 1974, imposing a global import surcharge starting at 10 percent, scheduled to rise to 15 percent.

USMCA-compliant goods remain exempt from the Section 122 surcharge. That is meaningful. But roughly 32 percent of Mexican USMCA-compliant goods and 37 percent of Canadian goods remain subject to Section 232 tariffs. The Section 232 steel tariff now sits at 50 percent, producing visible downstream effects across consumer goods and manufacturing. The tariff toolkit remains expansive.

What the ruling did was modestly reduce the credibility of large, rapid tariff threats and paradoxically push Washington toward the USMCA review as the preferred venue to extract concessions it can no longer reliably secure through unilateral executive action. For trade lawyers, procurement teams, and supply chain managers, this shift in venue is consequential. Concessions negotiated inside the USMCA become binding and durable. Concessions extracted through executive tariffs are always one court decision away from reversal.

This is the development most trade analysts are underweighting. Fentanyl interdiction, migration management, defense coordination, and economic security are no longer parallel tracks. They feed directly into the trade conversation. Progress or stagnation in one domain spills into the others immediately. The bilateral relationship is fully decompartmentalized. For both Mexico and Canada, security cooperation is not a goodwill gesture. It has become a gatekeeper for economic certainty.

President Sheinbaum has delivered more than her predecessor. Record fentanyl seizures. Targeted cartel leadership at the highest level. The killing of El Mencho on February 22 was a clear signal: bilateral intelligence cooperation works, and U.S. troops on Mexican soil are neither needed nor welcome. Washington’s response has been to treat these steps as necessary rather than decisive. Accommodation today becomes expectation tomorrow.

The aftermath of El Mencho’s death showed how quickly security gains produce new instability. Roadblocks at more than 250 points across 20 states. At least 73 people killed. 25 National Guard members dead. Guadalajara paralyzed, months before Mexico hosts FIFA World Cup matches. The security track is not a solved problem. It is a live variable inside the trade negotiation, and anyone pricing Mexican political risk needs to treat it that way.

Same treaty. Same moment. Opposite strategies.

Mexico is deepening integration with the U.S. market while pivoting away from Chinese inputs. Plan Mexico, the Sheinbaum government’s industrial strategy, aims to reduce reliance on Asian supply chains and increase domestic production. The instinct is right. Implementation remains uncertain, and Mexico’s constitutional overhaul, energy sector closure to private competition, and unpredictable tax enforcement continue to undermine what should be its strongest argument: that it is the most attractive nearshoring destination in the Western Hemisphere. Resolving most of these concerns does not require new legislation. It requires consistent, transparent enforcement of rules already on the books.

Canada is not walking away from the U.S. market. But it is building alternatives at a pace without modern precedent. Prime Minister Carney committed to NATO defense spending of up to 5 percent of GDP, signed 12 agreements on four continents since taking office, and declared at Davos that the rules-based international order had experienced “a rupture, not a transition.” The U.S. House of Representatives voted to override Trump’s tariffs on Canada, a signal that Ottawa retains meaningful political support in Washington that the administration’s leadership has chosen to disregard.

That divergence will define how each country sits at the table. Mexico as a partner willing to tighten the terms of integration. Canada negotiating from an increasingly defensive position. For multinationals with supply chains spanning all three countries, this divergence is an important sourcing and investment variable.

The hourglass is running. July 1 is the moment to flip it. The question is whether all three governments will recognize that in time.

Part 2 covers the six scenarios for how the review could end, with probability estimates for each. Part 3 covers the specific issues most likely to define the outcome. Both coming soon.

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Diego Marroquín Bitar covers North American trade, geopolitics, supply chains, and investment across all three countries. North America Compass is where he shares what he sees before it becomes conventional wisdom. Follow him on X and Ig at @DiegoTMEC