Trump Trashes His Own Trade Pact, How Tariffs Are Undermining the USMCA and American Prosperity
“The boss doesn’t like free trade. Zero tariffs are off the table.” That’s the message rumored to have been delivered to members of the Mexican business community last week by US Trade Representative Jamieson Greer when he visited Mexico City. I asked the USTR press office if it wished to comment. It declined. Reuters reported that it too heard that the US president’s trade emissary expressed hostility toward free commerce while in the Mexican capital. According to “four industry sources,” Mr. Greer “told Mexico’s auto and steel industries they should not expect the renegotiation of the US-Mexico-Canada Agreement to remove President Donald Trump’s tariffs on their sectors.” It isn’t hard to believe either assertion. Mr. Trump negotiated the USMCA in his first term and signed it into law in 2020 to replace the 1994 North American Free Trade Agreement. It promises free trade among the three countries. But now he’s having regrets. Since he can’t take it back, he’s decided to cheat. This is doing reputational damage to the US abroad. Worse, it’s undermining the American economy.
The USMCA: A Deal the President No Longer Likes
The US-Mexico-Canada Agreement (USMCA) was Trump’s signature trade achievement in his first term. He negotiated it, championed it, and signed it into law in 2020. It replaced the 1994 North American Free Trade Agreement (NAFTA), which Trump had called “the worst trade deal ever made.” The USMCA promised free trade among the three countries, with updated rules on digital trade, labour standards, and environmental protections. It was supposed to be a model for 21st-century trade.
Now Trump is having regrets. Since he can’t unilaterally withdraw from the agreement—the USMCA has a complex review process—he has decided to cheat. He is imposing tariffs on Canadian and Mexican goods that violate the spirit and letter of the agreement. He is using a national security provision (Section 232 of the Trade Expansion Act of 1962) to justify tariffs that have nothing to do with national security. He is undermining the very deal he once celebrated.
The USMCA is due for a six-year “joint review” this summer—what Reuters called a “renegotiation.” The president seems to want to blow the whole thing up. But that isn’t so simple. The trade pact says that if the three parties don’t sign off on an extension during this review, the existing deal remains in effect and the parties try again next year. They have 10 years of annual reviews to come to consensus. If no settlement is reached by 2036, the agreement will be terminated.
True, every year that passes without an extension will increase investor uncertainty. The longer things remain unsettled, the greater the risk that North America underperforms its potential. But missing the deadline this year isn’t a crisis for the USMCA. If the US withdraws from the agreement, it will lose duty-free access to its two largest markets—Canada and Mexico. Continental trade reached some $1.8 trillion last year. The survival of the agreement is important for American investors, workers, businesses, farmers, and ranchers.
But it’s tough on Tariff Man. Trump doesn’t like the exchange of goods and services without the US government taking a cut. The thought of another decade of free trade across North America is, apparently, a real bummer.
The Tariffs: A Gut Punch to North American Integration
Last year Trump used Section 232 of the Trade Expansion Act of 1962 to put 50 per cent tariffs on steel and aluminium from Mexico and Canada. Manufactured goods like appliances, other consumer durables, and small recreational vehicles also got hit with a new 50 per cent tariff, but only on their non-US metals content. The 232 executive power to tax is supposed to be limited to the protection of national security. But with no one to stop him, the president has gone “hog wild.”
The tariffs have been a gut punch to the integrated North American economy. Last fall, during the public-comment period ahead of the USMCA review, scores of American companies and industry groups clamoured for relief. On April 2 the president responded to them by increasing the pain.
Trump’s new modified 232 tariffs, effective April 6, subject manufactured goods from Canada and Mexico that are “substantially made” of non-US steel, aluminium, or copper to a 25 per cent tariff on the entire value of the product, even if it is USMCA compliant. Under USMCA, autos with 75 per cent regional content are duty-free. But the president has waved his arm and pronounced that only the made-in-America portion of a car can cross the border without a tariff. The rest of the vehicle is hit with a 25 per cent duty.
Consider a car assembled in Mexico with 80 per cent North American content (the USMCA threshold is 75 per cent). Under the agreement, that car should enter the US duty-free. Under Trump’s new interpretation, only the portion of the car that is made in America (say, 30 per cent) is duty-free. The remaining 70 per cent—including Mexican and Canadian content—is subject to a 25 per cent tariff. This is not a reinterpretation; it is a repudiation.
The Joke That Isn’t Funny: National Security Claims
Trump’s claim that Mexican- and Canadian-made refrigerators, washing machines, baby strollers, snowmobiles, and golf carts are a threat to US national security has generated a lot of good jokes. A baby stroller from Canada is not a threat to the security of the United States. A snowmobile from Mexico is not going to be used to attack American troops. The national security justification is a pretext.
Section 232 of the Trade Expansion Act of 1962 allows the president to impose tariffs on imports that threaten national security. It was intended for strategic goods: steel for tanks, aluminium for aircraft, semiconductors for weapons. It was not intended for consumer durables. But the law is vague, and the courts have been deferential. No one has successfully challenged a presidential national security determination. So Trump has used Section 232 as a blank cheque.
The 232 tariffs are no laughing matter for North American businesses. They increase costs, disrupt supply chains, and create uncertainty. A company that invested in a North American supply chain relying on the USMCA’s promise of free trade is now facing tariffs that make that investment less profitable. Some companies may relocate production outside North America. Others may raise prices for consumers. Still others may lay off workers.
The Political Calculus: Who Supports These Tariffs?
The politics of the tariffs are strange. Gutless Republicans are too afraid of the president to object. They voted for the USMCA; they praised it as a victory for free trade. Now they are silent as Trump tears it apart. The Democrats, long opponents of trade and spend for Big Labour, are happy to see him working for their traditional supporters. Labour unions have long opposed free trade agreements, arguing that they cost American jobs. Trump’s tariffs are a gift to them.
The goal is to make final products from Mexico and Canada less affordable for US consumers. But in an “affordability” crisis—with inflation still above the Federal Reserve’s target—that sounds like a bad political strategy. Consumers are already struggling with high prices for cars, appliances, and other durable goods. Tariffs will make those prices higher. That is not a winning message for an election.
If Mexico City and Ottawa retaliate as they have in the past, they’ll probably close markets to American farm and liquor exports that come from Trump country. Canada and Mexico are the top two export markets for US agricultural products. American farmers—a key Trump constituency—will be hurt. American distillers—many in Kentucky and Tennessee, Republican-leaning states—will be hurt. The tariffs are not just bad economics; they are bad politics.
The Supply Chain Reality: Wounds on American Companies
Because a web of supply chains now criss-cross the continent, with the US producing most high-tech components that go into final products from north or south of the border, the 232 tariffs are bound to inflict wounds on lots of American companies. A car assembled in Mexico may contain an engine made in Michigan, a transmission made in Ohio, and electronics made in Texas. Tariffs on the Mexican-assembled car are tariffs on the American content embedded in that car. The American suppliers are not protected; they are penalised.
Consider the auto industry. Parts cross the border multiple times before a car is completed. A steel component may be made in the US, shipped to Mexico for stamping, shipped back to the US for painting, and then shipped to Canada for assembly. Each crossing is a potential tariff event. The complexity of supply chains means that tariffs are not simple; they are a nightmare.
One wonders whose side Mr. Trump is on. The tariffs hurt American consumers (through higher prices), American companies (through higher costs), American farmers (through retaliation), and American workers (through potential job losses). The only beneficiaries are foreign competitors who are not subject to the tariffs. A Chinese car company that sells in the US market is not affected by tariffs on Mexican content. A European steel company is not affected by tariffs on Canadian aluminium. The tariffs are self-defeating.
The Way Forward: Can the USMCA Be Saved?
The USMCA review process is an opportunity to clarify the agreement and resolve disputes. The US could propose amendments that address legitimate concerns about Chinese transshipment or labour standards. It could negotiate sectoral agreements that reduce barriers. It could work with Canada and Mexico to strengthen supply chain resilience. Instead, the US is threatening tariffs and undermining the agreement.
The worst-case scenario is a trade war. Canada and Mexico have already retaliated against US steel and aluminium tariffs in the past. They can do so again. A trade war will harm all three economies. It will disrupt supply chains that took decades to build. It will increase uncertainty for investors. It will raise prices for consumers.
The best-case scenario is that cooler heads prevail. The US administration realises that the USMCA is in its interest, that tariffs are self-defeating, and that cooperation is better than confrontation. The joint review could be used to strengthen the agreement, not to destroy it.
But that outcome seems unlikely. Trump has demonstrated repeatedly that he prefers tariffs to trade. He believes that trade deficits are a sign of weakness. He believes that tariffs are a source of government revenue. He believes that protectionism is good for American workers. These beliefs are not supported by economic evidence, but they are firmly held.
Conclusion: A Self-Inflicted Wound
The USMCA was a flawed but genuine achievement. It updated NAFTA for the 21st century. It preserved free trade across North America. It provided certainty for businesses and investors. Now Trump is trashing his own pact. He is imposing illegal tariffs, making a mockery of the agreement, and undermining the American economy.
The reputational damage is real. Countries that negotiate trade agreements with the US now know that the US may not honour them. The US is no longer a reliable partner. The next administration may be different, but the damage will persist. Trust, once broken, is hard to restore.
The economic damage is real. The tariffs increase costs, disrupt supply chains, and reduce investment. They will not bring back factory jobs; they will not reduce the trade deficit; they will not make America great again. They will make Americans poorer.
The political damage is real. Trump’s base may cheer tariffs, but swing voters in manufacturing states will feel the pain. Farmers in the Midwest will feel the retaliation. Consumers everywhere will feel higher prices. The tariffs are not a winning issue.
Trump trashes his own trade pact. The question is whether anyone will stop him. The courts? Unlikely. Congress? Too afraid. The voters? Perhaps. In the meantime, North American integration is under assault, and the American economy is paying the price.
Q&A: Trump’s Tariffs and the USMCA
Q1: What is the USMCA, and why is Trump now undermining it?
A1: The US-Mexico-Canada Agreement (USMCA) is the trade agreement Trump negotiated in his first term and signed into law in 2020, replacing NAFTA. It promised free trade among the three countries. Trump is now undermining it because he “doesn’t like free trade” and regrets the deal. He is imposing tariffs on Canadian and Mexican goods using a national security provision (Section 232) that has “nothing to do with national security.” The US Trade Representative told Mexican industry representatives that “zero tariffs are off the table” and not to expect relief from Trump’s tariffs during the upcoming USMCA review. The article states Trump “can’t take it back, so he’s decided to cheat.”
Q2: What are the specific tariffs Trump has imposed, and how do they violate the USMCA?
A2: Trump used Section 232 to impose 50 per cent tariffs on steel and aluminium from Mexico and Canada. He then imposed 25 per cent tariffs on manufactured goods (appliances, consumer durables, small recreational vehicles) that are “substantially made” of non-US steel, aluminium, or copper—even if the product is USMCA compliant. Under USMCA, autos with 75 per cent regional content are duty-free. Trump’s new interpretation says only the made-in-America portion of a car can cross without a tariff; the rest (including Mexican and Canadian content) is hit with 25 per cent duty. The article notes that “baby strollers, snowmobiles, and golf carts” are not national security threats—the justification is a “pretext.”
Q3: What are the economic and political consequences of these tariffs?
A3: Economic consequences include: disrupting integrated North American supply chains (parts cross borders multiple times); increasing costs for American companies; raising prices for American consumers (in an “affordability crisis”); and risking retaliation from Canada and Mexico (targeting American farm and liquor exports from “Trump country”). Political consequences include: “gutless Republicans” too afraid to object; Democrats happy Trump is working for their traditional supporters (labour unions); and potential voter backlash from farmers, manufacturers, and consumers hurt by tariffs. The article asks: “One wonders whose side Mr. Trump is on.”
Q4: How does the USMCA’s review process work, and what happens if the parties cannot agree?
A4: The USMCA is due for a six-year “joint review” this summer (2026). If the three parties don’t sign off on an extension during this review, the “existing deal remains in effect and the parties try again next year.” They have 10 years of annual reviews to come to consensus. If no settlement is reached by 2036, the agreement will be terminated. However, “every year that passes without an extension will increase investor uncertainty.” If the US withdraws, it will lose “duty-free access to its two largest markets.” Continental trade reached $1.8 trillion last year, and the agreement’s survival is “important for American investors, workers, businesses, farmers and ranchers.”
Q5: What is the broader reputational damage of Trump’s actions, according to the article?
A5: The article argues that Trump’s actions are doing “reputational damage to the US abroad.” Countries that negotiate trade agreements with the US now know that the US “may not honour them.” The US is “no longer a reliable partner.” Trust, “once broken, is hard to restore.” The article contrasts Trump’s first-term negotiating of the USMCA with his current “cheating” and tariff imposition. It notes that “the only beneficiaries” of the tariffs are foreign competitors not subject to them (e.g., Chinese car companies, European steel companies). The conclusion is that the tariffs are a “self-inflicted wound”—making Americans poorer, disrupting supply chains, and reducing investment—”not a winning issue” even for Trump’s base. The question is “whether anyone will stop him”—the courts unlikely, Congress too afraid, the voters perhaps. In the meantime, “North American integration is under assault, and the American economy is paying the price.”
