Washington seeks to hold aces on pact with trade partners

The US decision not to support the extension of the United States-Mexico-Canada Agreement beyond 2036 is aimed at strengthening Washington's leverage in future trade talks rather than signaling an end to the pact, experts say.

Under the USMCA, the agreement remains in force until 2036. If all three parties agree during the review, the agreement can be extended for another 16 years.

Julian Castro-Rea, a political science professor at the University of Alberta, said Washington's decision should not be interpreted as an attempt to end the USMCA.

"The only thing US Trade Representative Jamieson Greer declared is that his country does not agree to extend the USMCA beyond 2036, until 2042.

"Indeed, the agreement stays in place until 2036, with yearly revisions. This is not at all putting an end to the review process," he told China Daily.

Castro-Rea described the US position as "clearly a negotiating tactic, aimed at intimidating US' North American trade partners".

"But it is barely effective, as the partners and even the markets are by now used to the Trump administration's explosive declarations followed by limited action or even withdrawal," he said.

He said Canada and Mexico have become more experienced in dealing with Washington's negotiating style.

"The way both countries are already doing it: by taking those declarations with a grain of salt and focusing on detailed negotiations," Castro-Rea said.

According to Castro-Rea, the US is expected to seek a reduction in its trade deficit with Canada and Mexico, a higher share of US-made content in vehicles sold across North America, and greater access to Canada's dairy market.

Mexico, meanwhile, is seeking lower US tariffs on its exports, while Canada is expected to prioritize reducing US tariffs on steel, aluminum and finished vehicles, he said.

Kim Richard Nossal, a professor emeritus of political studies at Queen's University, said the outcome was largely expected because the two alternative scenarios — terminating the agreement or extending it for another 16 years — were both unlikely.

"A complete termination would be too costly for the United States given the highly integrated supply chains that tightly link the North American economy," Nossal told China Daily.

"But a renewal for another 16 years was also unlikely given that President Trump had completely changed his mind about the USMCA and given that the negotiations for renewal, particularly with Canada, had not advanced enough," he said.

Instead, Nossal said the current arrangement serves Washington's interests.

"This option — which extends the agreement for another 10 years, with annual reviews — suits the United States just fine," he said.

"Existing supply chains are preserved, and most goods will continue to move across the border without tariffs.

"Key sectors like autos, steel and aluminum continue to be tariffed, putting the United States in a dominant position in the annual review process, which will ensure that American demands will continue to be made of both Canada and Mexico," he said.

While Canada and Mexico would have preferred a full 16-year extension to provide greater certainty for businesses and investors, Nossal said the current arrangement remains preferable to ending the agreement altogether.

"For Canada and Mexico, this option clearly is the second best," he said.

"Both countries wanted the agreement to be renewed for the full 16 years, since this provides maximum predictability that is key for investment decisions.

"But the extension with annual reviews — which puts both countries at a continual disadvantage over the next 10 years — is preferable to the termination option," Nossal said.

According to Castro-Rea, the coming months are likely to be dominated by bilateral negotiations rather than dramatic changes to the agreement itself.

"Conversations will resume on a bilateral basis to address the contentious trade issues between the three countries," he said.

He expects Washington to continue using tough rhetoric while seeking separate understandings with Ottawa and Mexico City.