USMCA: Can North America’s Trade Deal Survive?

25:25My personal judgment, what I do and what I encourage customers and people I talk to to do with all politicians, quite frankly, is, you know, listen carefully to what people say, but watch what they do. watch what the results of the policies are, try and understand what the intended results are, and then always watch extremely carefully and closely for what always happens, which is the unintended consequences, because it's often the unintended consequences that are the most consequential and come at you from an unexpected perspective. And I think one of the places to look always for unintended consequences is when you think you have a very strong negotiating position when you put tariffs on somebody and don't expect them to retaliate and then they do.

26:13The unintended consequence of that is, well, they did, and now that's costing our producers or our industry. Be it a trade dispute with China putting a halt to soybean orders, or the war in Iran driving up fertilizer costs, farmers have felt the brunt of those unintended consequences. I'm excited that President Trump has initiated lots of trade talks. I would like to see more details and I would like to see the boats loaded and product moving. Unfortunately, it's not moving as fast as I would like. I think all farmers, when we hear about a trade deal, we expect that tomorrow we'll see the price go up and we'll see the products moving and our carryout going down.

26:52But we haven't seen that yet now because I think we're at a crossroads where we might need to look at farm policy a lot different than we have in the past. And this might be the time where we change direction on some of these things, including subsidies and payments. If we can utilize the benefits of the government in terms of trade and investment into new domestic uses to help find new markets for us, I think that's the way we have long-term success. This is the end of the line here pretty quick. I think we've seen the start of the loss of farmers permanently, one way or another. I think that we could increase the speed of the change of agriculture.

27:35For corn farmers like Stu Swanson, the change needed may not be in the USMCA at all. They've seen their exports rise to both Canada and Mexico. What they need are trade deals with the rest of the world to restore export markets that they've lost. Coming up from cars to farms to new technology, what the energy business needs in North America to generate all that power AI is looking to consume.

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30:49This is a story about parallel play. If North American trade in autos goes back and forth among the three countries, and trade in agriculture as larger U.S. exports, when it comes to energy, one size definitely does not fit all. The U.S. generally imports oil from Canada and exports natural gas to Mexico. The USMCA may aspire to be multilateral, but in practice, it looks more like two bilateral arrangements. David Gura brings us the story. Howard Energy Partners has a natural gas pipeline that runs from South Texas to Monterrey in Mexico. It supplies part of the 6.4 billion cubic feet of natural gas Mexico imports from the U.S.

31:32each day. We're the only one that actually crosses the border on both sides of the border with the same ownership. There are other pipelines that end at the border of Mexico and Texas, but then gets picked up by another company in Mexico and continues on. We're the only one that actually crosses the border. But there's probably on the order of 10 pipelines that cross into Mexico from the U.S. CEO Mike Howard sees Mexico's reliance on the U.S. firsthand. All business starts with energy. And the energy business is the business that powers every other business. So whether they produce their own energy or not, they need the energy.

32:11And so if a U.S. company is not invited to own infrastructure in Mexico, somebody needs to build it. So if they want to build it, that's fine. I think America has the most affordable, most reliable forms of energy to give to them. Energy trade standards between the U.S., Mexico, and Canada were first established by NAFTA, which included zero-tariff treatment for oil, natural gas, and refined petroleum products. The flow of energy exports had been integrated across all three countries, but in the intervening years, that's changed. Well, the thing about North America is that most of the times it works as two very big bilateral relationships.

32:50The U.S. and Mexico on one side, the U.S. and Canada on the other. Diego Marroquin Bitar is at CSIS. We have to keep in mind that we have a North American energy machine that it turns, it has turned for over 100 years, not just the past 30 years since NAFTA. I think the main difference now is that as years go by, the U.S. market becomes increasingly dependent, increasingly interconnected to the Mexican market and to the Canadian market. You can see it clearly, for example, on oil. 60 % of U.S. oil imports come from Canada. The refineries in the U.S. are adapted in order to refine that sour crude oil from Canada.

33:31In the case of Mexico, 70 % of the natural gas that Mexico imports yearly comes from the U.S. 60 % of the electricity generated in Mexico comes from natural gas. So the U.S. is using Canada and Mexico's export markets. And then those two other countries are using that cheaper energy in order to make competitive products. So again, the longer this goes for, the more integrated we are, and the more disruptive trade and investment obstacles become. Mexico has long recognized its reliance on the U.S. for energy. And one way it's tried to reduce that dependence is by strengthening its own energy sector.

34:09But progress has been limited. Mexico's perspective has changed over the years. We had basically a state monopoly on energy production for over 70 years. That changed in 2014 when the then-President Peña Nieto administration liberalized the energy market. That quickly went away when President López Obrador got elected in 2018 and he reversed the liberalizing market reforms. So what he basically did was changing the state-owned firms from Mexico, CFE for electricity, Pemex for oil production. And instead of being productive entities, they became public entities. And what that did was it created a threshold for electricity production in Mexico that needs to come from Pemex and CFE.

34:56Those state-owned firms are the biggest causes of friction between the U.S. and Mexico when it comes to the cross-border energy trade. So the main complaints are, number one, Pemex and CFE, Mexico state-owned firms, getting priority, getting more lenient treatment, compared to U.S. firms investing in Mexico. One of the core commitments of USMCA is you have to treat everyone the same, regardless of where the capital is coming from. And these constitutional amendments that President Scheinbaum implemented, that President López Obrador also was pushing for, they are giving Pemex and CFE a predominant position in Mexico's energy market.

35:38And that's one of the biggest obstacles that we have for the USMCA review. It may seem like the U.S. has an upper hand in the ongoing trade talks, but that's less clear when the U.S. has something to sell that it needs Mexico to buy. When you look at how your company is growing, how big a role is Mexico going to play? You know, geographically it's a big deal. Economically it's less than 10 % of the business we have, but we just completed a new presidential permit to lay another pipeline into Mexico. One of the pipelines we didn't mention is over near Eagle Pass, Del Rio. It actually delivers natural gas to the world's largest brewery.

36:16So if you drink Modelo beer, our natural gas actually boils the water that makes the beer. I think it's very important for the border of Mexico and also for the continuing growth of their economy is to continue to support any kind of electricity demand or energy that they may need to help their economy. So it's very important to our business. It's not an economic driver necessarily in a majority way, but it's very important to us. About 1 ,500 miles north of the U.S.-Mexico border, it's a very different story. But it wasn't always that way. Jatane De Silva was CEO of the Canada Energy Regulator from 2020 to 2023.

36:55How would you characterize the energy relationship between Canada and the U.S. today? I think it's mutually beneficial. I mean, the Americans are very fortunate to be sitting beside a country that has such a vast landmass and so few people that is blessed with pretty much every energy resource there is, not just oil and gas, but uranium as well. And so I think it's very fortunate for the United States that we have this agreement that has encouraged the integration. And for Canada, of course, the reverse is true. Having such vast quantities of commodities and being a middle power in a trading nation to be sitting beside the world's largest economy is obviously a great advantage.

37:33And so we're hopeful that any renewed trade agreement will continue to allow that energy to flow freely across the border. Do you think that Americans appreciate that, that it is such a beneficial relationship? In my experience, most Americans are completely shocked when they find out that Canada is their largest supplier of energy. They think it's Saudi Arabia or a country in the Middle East, and so they're often quite surprised to find out that 60 % of their oil exports come from north of the border. You know, in my experience, Americans just don't think about Canada the way Canadians do. Even though the energy relationship between the U.S.

38:05and Canada is a productive one, energy is the main reason the U.S.'s trade deficit with Canada reached about$46 billion in 2025. NAFTA had an energy chapter or the proportionality clause because the NAFTA was signed and negotiated not that long after the last global energy crisis. So one of the American priorities in that negotiation was to ensure access to Canada's vast energy resources. And so a provision was put in NAFTA that required Canada to sell as much energy to the United States on a good day is on a bad day. As a result of that, Canada built its energy infrastructure north-south and not east-west or west-east.

38:45So if you look at a map of pipelines in North America, the overwhelming majority from Canada go south into the United States, even if they go south around the Great Lakes and back up into Canada. And so when the USMCA came around, given the fact that that infrastructure already existed, that basically ensured the proportionality. That and the fact that the U.S. had undergone a shale revolution meant that the USMCA does not have an energy chapter, no proportionality clause. And so I think the question for many people going forward, given the state of the global energy situation, is will the U.S.

39:17be looking to return to some type of energy clause in a renewed USMCA? Do you think that Canada is utilizing that leverage appropriately in these negotiations, or could it be doing more to kind of wield influence as these talks get underway? I think there was a great debate in Canada initially when we went all elbows up in terms of the president's threats towards Canada and the imposition of tariffs. You know, what do we have that the United States needs that we could easily withhold and that would cause grief in the American economy and hopefully get things back on track? I think now, though, Canadians realize that the better approach is demonstrating to the U.S.

39:52administration that we have the best product out there that is helping to make America great again. and you've seen this shift in tone from our Prime Minister as well. He was recently in the United States and he indicated that, you know, a strong Canada is what will help to make America great again. And so just this understanding that there is a high degree of commonality, that there's lots of things that are mutually beneficial in this agreement. And I think for Canada, it's looking at that longer term play. How does Canada balance its eagerness to diversify, find more audiences for exports, with the fact that the U.S.

40:26is so critical, so important to it. Canada is engaged in a game of 3D chess. I mean, the reality is that the U.S. is a hugely important market for us. So more than 70 % of our exports still go to the United States, more than 90 % of our energy exports. We cannot replace that market overnight. And also we know it is never smart to just have one customer. So we need to diversify our economy. And certainly that has taken greater priority in light of the tone and approach of the current administration. it is a very fine balance. I'm curious what the energy relationship is like between Canada and Mexico.

41:01Is there one to speak of? There is certainly a relationship, you know, as Mexico is looking to build out its energy sector, it looked to Canadians' regulations to do that. They looked to Canada's national energy regulator as well as to some provincial energy regulators to figure out how they wanted to set up their systems. We did also see, you know, in the late 90s, early 2000s, actually we saw the major pipeline companies here in Canada, Enbridge and TC Energy, actually made big purchases. They bought pipeline networks all the way through North America, and then with the changing government in Mexico and the approach to nationalizing their energy sector, some of them pulled out.

41:40But there is a lot of trade and services and expertise that happens between Canada, Mexico and the energy sector even today. With energy as a multilateral issue where all the parties involved seem to benefit, many of the industry's players agree on one thing, that the best outcome might be the status quo. We probably want to make sure that energy stays out of the conversation because right now the free flow of energy that's going on right now is helping the economy grow. If their economy grows, it helps the U.S. and vice versa. So I am interested to make sure that energy doesn't become part of the conversation.

42:16But other than that, I'm more interested to understand if there's any other economic impacts that will slow the energy use or slow the energy growth of Mexico down. Next, the best we can hope for and the worst we might fear from the USMCA negotiations. We talk with former trade negotiators from the three countries at the table.

42:42Wall Street Week is brought to you by OTC Markets Group. Thinking about joining the exploding overnight market space, but unsure where to start? Designed to meet the needs of a growing international investor base, OTC Markets' overnight platform for exchange-listed securities, Moon ATS, provides access to global securities in U.S. dollars from 8 p.m. to 4 a.m. Eastern, Sunday through Thursday. Extend your trading day and trade global securities in U.S. dollars through a FINRA licensed broker-dealer. In April, over$4.5 billion U.S. dollars traded on MoonATS. Support for this show comes from Public.com.

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45:25Negotiations over the USMCA are about the sectors most directly involved, like autos and agriculture and energy. But ultimately, they're about three countries, what they hope to achieve from any revisions to the trade agreement, and what they need to protect. For these three perspectives, we welcome now Kristen Hillman. She's former Canadian ambassador to the United States. Geronimo Gutierrez Fernandez, former Mexican ambassador to the U.S., and Kellyanne Shaw, former USTR general counsel, now with the Aiken Group here in Washington. I'll start with you, Kirsten, because you were involved in the USMCA negotiation.

46:00Let me ask the really scary question. What is the chance we end up with no deal? Yeah, well, I think the first thing, and there's a lot of complicated process around what's going on right now. I think one thing that's important for people to understand is that there is a deal. And even if on July 1st, the parties don't agree to renew it, it stays in place. And we work to find ways to come to an agreement on modifications. But while we're working on that, the agreement stays in place. So I think the chances of the deal staying in place are very high. Then arrangements around the modifications. I also think we have a very good chance.

46:37There's a lot of things in particular that USTR said they're looking for that I think both Canada and Mexico can work with. Let's ask a different kind of risk, because I've also seen some people say there's a possibility that the U.S. would do a deal with Mexico and leave Canada out, given some of what the Prime Minister of Canada has been saying. Is there any prospect for that, Geronimo? I think we saw it during the first USMCA negotiation. We saw a similar environment. And I think the fact that we ended up with a trilateral agreement reflects the fact that it is extremely important for North America as a region.

47:13So trade negotiations are never easy, even less so nowadays, even less so when you have sort of a contaminated agenda, a very complex geopolitical agenda and security agenda at the same time going on. But in my view, there has never been a time, I think, which makes more sense to continue building up our North American economic region. And if we add security to that, given the geopolitical context, to me, makes all the sense in the world. Nevertheless, to be also objective, we have never been, I think, in the past 30 years, as close as losing that opportunity. And that's, in a sense, that's a shame.

48:08Kellyanne, Geronimo says there's never been a time when it's more important to have this. Does President Trump agree with that? If you listen to his trade representative, it doesn't always sound that way. Well, look, I think the North American trading relationship is the biggest trading relationship on the planet. It is incredibly important. The real question is, does President Trump value USMCA, this particular trade agreement? He's always been skeptical of it. I was in the first Trump administration. I was there when this agreement concluded, when it passed through Congress. He thought it was an improvement on NAFTA, but insisted on this sunset provision, which we're dealing with right now, the six-year review, so that it wouldn't be like NAFTA, where we're stuck with it for 25 years and can't do anything about it.

48:51But I think at the end of the day, everybody appreciates how important this economy and this North American trading system is. David, could I just add one thing, too, that I think is important to recognize? There's a lot of discussion around tariffs, right? Tariffs are a big part of the discussion that we've had since President Trump has come back into office. But the USMCA contains all the rules on intellectual property protection, all the rules on agriculture, all the rules on services trade, all the rules that deal with how we have our customs procedures sort of coordinated between the three countries.

49:21So the agreement is the foundation of the integrated nature of our relationship. If it goes away, none of us are bound by those rules anymore. That's why the implications of the agreement going away are enormous. I think that when USMCA came into effect, entering into force in 2020, it was actually seen as the future model agreement by the United States. I think the fact that it includes a provision that we did not have in the North American Free Trade Agreement, which is the possibility of reviewing, makes all the sense in the world. Because in NAFTA, it was sort of, you know, all or nothing.

50:02Again, I would emphasize that in the end, it makes USMCA is not perfect, but it works. And I think the past six years, we have seen that. Our intra-regional trade has evolved favorably. I think that if you ask a lot of the industries that are relevant for North America, that they would tell you that USMCA is a fundamental tool for them in producing together in North America and exporting to other regions. Kellyanne, you raise automotive as a really important factor here. Always has been among these three countries. But I think you can't right now discuss automotive even more so than six years ago without talking about a fourth country, which is China.

50:52And the looming prospect of Chinese exports of automobiles into Canada, as well as ultimately, perhaps the United States, certainly we're seeing it in Europe. So to what extent might the Trump administration see this renegotiation review of USMCA be a way of creating, I think some of their Canadian friends called it fortress North America. President Trump was describing it as a zero-sum game. He wants the auto industry, I want the auto industry, only one of us is going to have it. Now it's a negotiation, so we'll see where this lands, but I do think that the administration wants a very aggressive change to the rules of origin, which would actually also have a domestic content requirement, meaning some of that car is going to have to be made in the United States to qualify for USMCA, and almost none of that car should be made by any components from China.

51:43And that's a way not only to bolster the domestic industry, but also to protect the North American industry from Chinese inputs. In the case of Mexico, I think going back to the deficit, I think it's important to note, again, data, which is around 40 % on every dollar that is exported from Mexico into the United States is actually a U.S. component. That's a figure that has been there for quite some time. So you have to, again, if you go into the nitty greedy of the deficit, I think that needs to be taken into account. Since USMCA's first negotiation, I think it became clear that the US wanted to capture a bigger chunk of the growth of the auto industry into the future.

52:32And I think that is going to be accomplished. I hope it does not, it is accomplished in a way that companies which are really North American, Ford, GM, to mention a few, they operate throughout the Americas. It's done so in a way that they can continue to be competitive worldwide. And if that addresses the concerns by the administration, which I think it's possible, I think we should get to a good place within a few months, hopefully, or certainly within the next 12 months. You talk about certainty. Businesses, certainly the United States, Canada, and Mexico, want just to know what the rules are, even more than what the rules are specifically.

53:15Just know what they are, and they stand fast. What are the prospects of that right now? Because there's also, as I understand it under the terms of the USMCA, the possibility of every year you get to redo this thing, take another look at it. And goodness knows, President Trump seems to enjoy that process. Right. Well, I think that if the countries come to an agreement to review and then make modifications to USMCA, then they have the option of renewing it. And if it is renewed, then the next review comes up in six years, not one year. It sort of extends it for 16 years with another review in six years.

53:53So I think that that's the way the clause was created. The cause was created with the understanding that all three parties would come every six years and say, is it still fit for purpose? Do we need to make modifications? We thought that was the right timing for a variety of reasons. And I still do. I mean, we all lived with the NAFTA that became impossible to modify until it wasn't. Until President Trump, and to be fair, he went to a place that people had not been willing to go before, which was to open it up and have a good look at it. And that resulted in a much more modern agreement that resulted in an agreement that was much more effective and a mechanism that allows us to look at it every six years.

54:32So ideally, I think that, you know, I think we will work, Canada will work really hard to find some kind of solution that gives us stability. And then we'll look at it again in six years. What are the prospects of the result of this whenever that happens, being actually enhanced trade among the three countries? Or is the goal instead just not losing what we already have? Is there any goal of using this offensively to have even more and better trade rather than just let's not lose what we've got? Well, I tend to think that we actually have not seen the benefits of USMCA for a sufficient long period of time.

55:13Let me explain why. The agreement went into effect in 2020 right at the time that COVID hit. So that immediately affected our economic business and trade among ourselves. After that stabilized, you're beginning to see, in my view, a pickup in trade and employment thanks to that agreement. I think what we're going to see is tremendous benefits for the three countries. Now, again, I'm not naive. We're not there yet. And I think we're going to see, we're seeing our trade increase, even with tariffs nowadays. We're seeing investment. President Trump wants, naturally, every leader wants as much investment coming into their country.

56:07And that's a central part of the discussion. The U.S. invests around$160 billion. That's the stock of U.S. foreign direct investment in Mexico. Mexico, unknown to many Americans, has about 60. If you normalize that by the size of the economy, Mexico is actually investing more in the United States than in the United States in Mexico. And there are a lot of Mexican companies willing to invest more. And I think that's the certainty of having the deal for the next 16 years. It's critical for them. And essentially in all sectors. Even if you talk to the agricultural sector here in the States, they want that certainty also because they export billions of dollars of grains to Mexico.

56:56That does it for us here at Wall Street Week. I'm David Weston. See you next week for more stories of capitalism.

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