Key Takeaways:
The Trump administration's refusal to renew the USMCA trade pact this month has exposed a fundamental disconnect between Washington's trade-deficit fixation and the profit-driven reality of North American commerce.
President Trump's decision not to extend the United States-Mexico-Canada Agreement for another 16 years on July 1 leaves the deal in force but shifts it to annual reviews until all three countries either agree on renewal or the pact expires in 2036. The White House has established an annual review panel to examine prices and sources of inputs for individually traded goods, aiming to "reduce trade deficits."
"The administration is doubling down on a framework that mistakes revenue deficits for profit deficits," said Bill Wilby, former head of equities at OppenheimerFunds and author of a Wall Street Journal opinion piece published Wednesday. "The U.S. runs a revenue deficit on trade but an enormous surplus in profits when properly accounted for."
The three economies conduct about $1.6 trillion in annual goods trade under the agreement, which has shielded Canada and Mexico from many of Trump's global tariffs. Yet the data tells a different story than the one driving policy. US corporate profits grew from $500 billion in 1998 to $3.7 trillion in 2024, a more than sixfold increase, according to Wilby's analysis of global profit statistics. The rest of the world saw profits grow from $102 billion to $457 billion over the same period, a 3.5-fold increase. The US, with 5 percent of the global population and 25 percent of global GDP, captured 89 percent of world profits in 2024, up from 83 percent in 1998.
US household net worth has increased from $37 trillion to $174 trillion over the same period, the largest accumulation of wealth in history.
Separate tracks, divergent outcomes
The administration is now pursuing bilateral talks with Mexico and Canada separately, a strategy that trade experts say risks creating terms that one country must later accept or challenge. US-Mexico talks are about six months more advanced than informal US-Canada discussions, a Mexican official familiar with the negotiations said, potentially giving Mexico greater investment certainty and better terms in areas such as steel tariffs.
Trump ratcheted up pressure on Canada on Monday by imposing 50 percent tariffs on a wide range of goods, effective Aug. 19, with the administration citing Canadian policies on autos and dairy as well as provincial alcohol bans. Canadian Prime Minister Mark Carney said Tuesday he and Trump had agreed to intensify talks.
"The challenge is to keep those two processes moving in the same direction so that they feed into the trilateral mindset that Canada and Mexico have — and that the U.S. has expressed doubts about," said Juan Carlos Baker, a former senior Mexican trade negotiator.
Mexico has been more accommodating than Canada, people familiar with both countries' strategies said. Mexican President Claudia Sheinbaum has made concessions she can frame as advancing Mexico's priorities, including tighter border security, reduced fentanyl trafficking and greater scrutiny of Chinese investment. Carney, who won election last year promising to stand up to Trump, faces a different political calculus.
The previous 25 percent tariff escalation on Chinese goods under Section 301 in 2018-2019 reduced bilateral trade by about $75 billion over two years, according to Census Bureau data, offering a historical benchmark for how protectionist measures reshape supply chains. The current USMCA uncertainty is already weighing on sectors with cross-border production networks, particularly automakers whose supply chains cross North American borders multiple times.
Canadian negotiators must use the 30-day window before the new tariffs take effect to make rapid progress, said Matthew Holmes, executive vice president at the Canadian Chamber of Commerce. Canada has signaled it will not accept unfavorable terms merely to close the talks quickly, and the 10-year review timeframe could allow Carney to negotiate with a different US president.
"What I've heard from the prime minister and other members of the negotiation team is, 'We want a good deal for Canada, not a fast deal for Canada,'" Holmes said.
The core risk for both Canada and Mexico is that bilateral talks could become the blueprint that one country must either accept or challenge, delaying a trilateral deal. Neither government is expected to ask the other to hold back from reaching an advantageous bilateral agreement. Mexico "will do what's best for Mexico," Baker said, but it also wants to keep the USMCA trilateral and would resist proposals that explicitly broke apart the agreement.
This article is for informational purposes only and does not constitute investment advice.
