The Trump administration declined to renew the United States-Mexico-Canada Agreement on July 1, the deadline for a 16-year extension, triggering an annual review process instead.

The USMCA stays in effect for now, but the decision opens the door to renegotiation of major parts of the treaty each year until 2036, when the deal could expire entirely if no agreement is reached.

Trump's primary concern, per a senior administration official, is America's trade deficits with both Canada and Mexico.

The administration also did not renew because it wants to strengthen rules governing how much US content must be in goods traded under the agreement, according to US Trade Representative Jamieson Greer.

Auto supply chains face the biggest disruption

The auto industry accounts for roughly 18% of trade between the three countries, making it the sector most exposed to a prolonged renegotiation.

USMCA currently requires that 75% of a passenger vehicle's value come from North America. The Trump administration reportedly wants to raise that threshold to 82%, with 50% of that value specifically from the US.

Today, no vehicle on the 2026 model year list meets even an 80% threshold, according to National Highway Traffic Safety Administration data.

Moving a product from Mexico to Canada carries up to a 20% cost premium, and shifting some parts from China into the US raises costs by up to 50%, according to AlixPartners.

Boston Consulting Group warned that setting thresholds too high could backfire. If meeting compliance costs more than paying tariffs on cheaper imports, some automakers may simply opt out of the agreement and produce less in the US.

"It's not a small lift, and because it's not a small lift, there might be some unintended consequences," said Aakash Arora, Boston Consulting Group.

One proposed workaround is counting software as US content, which could help automakers clear higher thresholds without relocating physical production.

AlixPartners argues the better strategic framing is to treat China as the competition, not Canada or Mexico. Shifting focus toward a unified North American manufacturing base would better position the region against cheaper, subsidized Chinese vehicles expanding into South America and Europe.

Sales hold steady despite a turbulent backdrop

While trade policy clouds the industry's future, near-term sales have stayed relatively stable. Second-quarter US vehicle sales are expected to come in at roughly 4.16M units, essentially flat from a year earlier, per Cox Automotive.

General MotorsGM

was an exception. The automaker reported a 4.2% decline in Q2 US sales, with EV demand down 33% year over year and Chevrolet Silverado sales off 7.7%.

Hybrid vehicles helped offset broader weakness. US hybrid sales rose 17% through May, with higher gas prices nudging shoppers toward fuel-efficient options.

Affluent buyers, who now account for a growing share of new vehicle purchases, have largely shrugged off inflation and elevated fuel prices, keeping overall industry volumes from falling sharply.