Tariffs Might Be Reversed. A New North American Trade Deal Could Offer a Workaround.

President Donald Trump signed an executive order on March 6 that lifted 25% tariffs for all goods compliant under USMCA trade agreement. (Alex Wong/Getty Images)

A federal appeals court recently struck down a key part of the Trump administration’s sweeping tariff strategy, ruling that the president was too aggressive in his use of emergency powers. If the Supreme Court affirms that decision, many of President Donald Trump’s tariffs could be reversed.

But there is another avenue the White House could use to carve out new trade concessions from its North American neighbors. The USMCA trade agreement, established between the U.S., Mexico, and Canada in 2020, is up for review next July. A renegotiation of its terms could bring about big changes for America’s most important trade partners.

Once considered routine, the coming USMCA review will likely be a pivotal point in trade negotiations. The Center for Strategic and International Studies, a bipartisan national-security think tank, expects the Trump administration will use the review to seek concessions on trade disputes and to extract new agreements on issues such as immigration, continental security, and drug trafficking.

The Trump administration placed 35% tariffs on Canadian goods in April—but roughly 90% of U.S.-Canada traded goods are tariff-exempt because they fall under USMCA’s protections. Trump’s 25% tariffs on Mexican goods were put on a 90-day hold on July 31.

All of those tariffs were imposed under the International Emergency Economic Powers Act, or IEEPA, which the administration invoked by citing a fentanyl emergency. The IEEPA allows the president to apply tariffs if the Commerce Department establishes a national security issue.

Regardless of the Supreme Court’s decision on IEEPA, the Trump administration’s 50% tariffs on aluminum and steel will remain in place. Canada is the largest exporter of both steel and aluminum to the U.S. Mexico is also a top steel exporter.

Erin McLaughlin, a senior economist at the Conference Board, said she doesn’t expect clarity for Mexico and Canada trade until USMCA is revisited next year. Any significant change in the USMCA could mean companies operating in the North American market might have to change their nearshoring or onshoring manufacturing strategies, she said.

“We are seeing a lot of companies still just waiting this out,” McLaughlin says.

The automotive industry has been especially hard hit by the uncertainty surrounding tariffs, even though many auto-related imports among the U.S., Canada, and Mexico are protected by USMCA and aren’t subject to tariffs. Under the current USMCA, automobiles with 75% North American-made parts and at least 70% North American steel and aluminum are exempt from tariffs. Those rules could change next July, creating potentially more demand for U.S. made parts.

“Everything is on the table,” said Joshua Meltzer, a senior fellow at the Brookings Institution.

USMCA changes could have a big impact on car manufacturers. “The way the tariffs are being applied, there are a lot of costs on the auto makers now,” he said.

Toyota Motor, the world’s largest car maker, said tariffs will result in a $9.5 billion hit this year. It builds cars in the U.S., Canada, and Mexico. General Motors expects the tariff impact to total $4 billion to $5 billion this year. Ford Motor expects a $2 billion dent.

Meltzer said there could also be new additions to the USMCA negotiating table. Negotiations will likely introduce a fresh focus on critical minerals, particularly those traded between the U.S. and Canada. He said there could be a regulatory alignment that would encourage development of the minerals for the North American market.

Even as the tariffs remain and uncertainty lingers, there are signs of some softening of positions.

Canada’s Prime Minister Mark Carney ended retaliatory import tariffs on U.S. goods last month and said the country would intensify talks with the U.S. on their trade and security relationship. Mexico said recently that it plans to raise its tariffs on Chinese goods—something Trump has pushed for.

“What we are seeing now might be a little bit of a precursor or a lens toward what some of the discussions might look like as we get to summer 2026,” said Jessica Libby, principal of tax, trade, and customs at KPMG. She said the recent actions by Canada and Mexico are positive signs. “It is a more productive discussion.”

Nancy Lazar, chief global economist at Piper Sandler, said once the near-term uncertainty fades, the three countries might find themselves in a better economic environment.

Long term, North America will be “one of the strongest regions in the world” due to capital investment coming into the U.S., Lazar said. “As you go through 2026, you are going to get clarity and it is going to become clear the U.S. is doing economically better.”

Write to editors@barrons.com